The government is reportedly considering reintroducing merchant discount rate (MDR) on Unified Payments Interface (UPI) and RuPay debit card transactions. As per a report in The Economic Times, two senior banking officials confirmed that discussions are underway to impose charges on merchants using these digital payment methods.

Rationale Behind the Proposal

Currently, UPI and RuPay debit card payments are exempt from MDR, as they are facilitated by the National Payments Corporation of India (NPCI). However, banks have submitted a proposal suggesting that MDR be applied to merchants with an annual GST turnover exceeding Rs 40 lakh.

A tiered pricing system is being considered, where larger merchants would be subject to higher charges, while small businesses could continue to enjoy free transactions.

Banking Industry’s Perspective

Banking officials argue that large merchants already pay MDR on Visa, Mastercard debit cards, and various credit cards. Therefore, they believe these merchants should also be charged for UPI and RuPay transactions.

Since major retail businesses process over 50 per cent of their transactions through cards, a small fee on UPI payments is unlikely to have a significant impact on their operations.

MDR: Its Removal and Possible Return

Before 2022, banks charged merchants less than 1 per cent MDR on digital transactions. However, to promote cashless payments, the government eliminated these charges in the FY22 budget. Since then, UPI has become India’s most widely used digital payment system, with RuPay gaining significant traction.

UPI Transactions Hit Record Numbers

In February 2025, UPI processed 1,611 crore transactions, amounting to Rs 21.96 lakh crore in value. This represents a 33 per cent year-on-year increase in transaction volume and a 20 per cent rise in transaction value compared to February 2024, when 1,210 crore transactions worth Rs 18.28 lakh crore were recorded.

Monthly Decline in UPI Transactions

Despite annual growth, UPI transactions in February declined by 5 per cent compared to January 2025, which recorded 1,699 crore transactions worth Rs 23.48 lakh crore.

As discussions progress, the government’s decision on MDR could have a major impact on merchants, banks, and digital payment users alike.