India’s digital payments ecosystem could witness a significant policy shift as Reserve Bank of India (RBI) Governor Sanjay Malhotra stated that the cost of maintaining the country’s digital payments infrastructure cannot be ignored indefinitely. Speaking after the latest monetary policy announcement, Malhotra said it is too early to comment on the proposal to levy a Merchant Discount Rate (MDR) on UPI transactions above ₹2,000, as the government is still working on amendments to the Payment and Settlement Systems Act.
The RBI Governor stressed that while digital payments should remain accessible, affordable, safe and sustainable, the expenses involved in operating the system must ultimately be borne by someone. He noted that consumers may not always pay these costs directly, as they could be absorbed by the broader economy in different ways.
The government’s proposed amendments have revived discussions on reintroducing MDR on select UPI merchant transactions after nearly six years of a zero-MDR regime. According to the proposal, UPI payments above ₹2,000 made to businesses could attract an MDR of 0.25 to 0.4 per cent, while person-to-person transfers would remain free. One option under consideration is to apply the charge only to large merchants, ensuring that small businesses and consumers are protected. Industry stakeholders have consistently argued that the zero-MDR policy has left banks and payment service providers without a sustainable source of revenue despite the rapid growth in UPI transactions and infrastructure costs.
