Unnecessary politics has started over the introduction of a 0.4% merchant discount rate (MDR) on certain UPI person-to-merchant (P2M) payments above Rs 2,000. Starting from 15 October 2026, the changes do not touch 96% of UPI transactions, including person to person (P2P) transactions. But the total value of the remaining 4% of transactions is a humungous Rs 1,800 crore to Rs 2,400 crore per month. A small fee of 0.4% on this will ensure huge revenue for banks, payment service providers and app providers, helping them to maintain the digital infrastructure to ensure fraud-free and foolproof service delivery. Lest we forget, while UPI stands at the pinnacle of India’s digital revolution, it should not be taken as a freebie, which runs entirely on government subsidy. Apart from being a financial service for public good, it is also a commercial network, which witnessed 241 billion transactions in 2025-26, handling Rs 314 lakh crore or around US$3.4 trillion.
Maintaining any infrastructure takes money and as RBI governor Sanjay Malhotra said recently, it was unsustainable to maintain such a colossal digital infrastructure on government subsidies. For long-term sustainability, a small fee had to be levied. Countries like Brazil and China too charge in the range of 0.22-0.6% for their respective instant payment systems. Hence, the political charge that this was done to keep the US happy does not hold water. It is a fact that the US has been flagging India’s free UPI transactions as a trade barrier, accusing the system of undermining American card giants like Visa and Mastercard. With Indians opting for UPI payments, Visa and Mastercard have been nearly pushed out of the Indian market, thus losing the small fee they make from every card swipe. But then the MDR for these American cards comes to around 2%, much higher than the 0.4% that India is implementing for UPI transactions above Rs 2,000. So, the charge that the fee is being levied under US pressure to help bring American companies back in business, doesn’t stand up to logic. This had to be done to maintain India’s digital infrastructure. It’s an evolution for UPI and a much-needed reform to ensure that Digital India stays its course as a robust system going from strength to strength.