Government Explores Merchant Fees for UPI Transactions to Sustain Digital Infrastructure

The Indian government is considering the introduction of merchant fees for Unified Payments Interface (UPI) transactions, potentially ending the long-standing zero-fee model. The proposal suggests a Merchant Discount Rate (MDR) of 0.3-0.5% for larger transactions at big businesses, while ensuring that person-to-person payments remain free for the average consumer.

This shift is being evaluated as the cost of maintaining the UPI infrastructure continues to rise alongside record-breaking transaction volumes. In July 2026 alone, UPI processed 23.6 billion transactions worth ₹29.87 trillion. The government has previously spent approximately ₹8,730 crore in incentives between fiscal 2021-22 and 2024-25 to support the ecosystem, a model that is becoming increasingly difficult to sustain as the network scales.

If implemented, this change would mark a significant pivot in India's digital payment strategy. While the focus remains on large merchants, the move is designed to create a self-sustaining financial model for the payment rail. Stakeholders are closely watching how this potential MDR will be structured to avoid discouraging digital adoption among smaller merchants, who have been the backbone of UPI's rapid growth across the country over the past six years.