MDR on UPI Will Land on Merchants, Not Users: FM Sitharaman Clarifies Amid Bill Debate

Sitharaman Counters Congress, Says MDR Will Target Merchants, Not Users

Finance Minister Nirmala Sitharaman on Thursday pushed back against Congress leader Jairam Ramesh’s claim that a new bill would end free UPI transactions for ordinary users. In a social media response, she insisted that any future Merchant Discount Rate (MDR) would fall only on merchants, not on end users or customers.

The proposed amendment to the Payment and Settlement Systems Act, 2007, would remove the current statutory guarantee that keeps UPI transactions fee-free, paving the way for the reintroduction of MDR. Sitharaman clarified that no decision has been taken yet, and that the UPI and Services Steering Committee headed by the National Payments Corporation of India (NPCI) will decide on the MDR only after the bill is passed by Parliament.

ET had earlier reported, citing sources, that the government is considering reintroducing MDR on UPI for large merchants at 5–7 basis points. The MDR has been set at zero since January 2020, when the rules were changed to drive digital adoption, much to the dismay of banks and fintechs who say the missing fee undermines their ability to invest in the payment infrastructure.

Why India’s Payments Industry Wants MDR Back — and the Cost for Businesses

The Payments Industry’s Longstanding Demand

Banks and fintech companies have been lobbying for years to bring back MDR on UPI, arguing that the current zero-fee model is unsustainable. The finance minister herself acknowledged that the revenue from MDR would let them invest in infrastructure, innovation and security — benefits she said would eventually flow to all UPI users. For payment firms, the policy shift opens a new and potentially sizeable revenue stream, especially those processing high transaction volumes.

Which Businesses Will Bear the Cost?

The government’s focus appears to be on large merchants, not small shopkeepers. Sitharaman stressed that MDR applies “only on the merchants” but did not explicitly say whether all sizes of merchants would be covered. Sources indicate that the levy, if introduced, is likely to target larger businesses with higher turnover. That means retail giants, e‑commerce platforms and large service providers could face an additional cost of 5–7 basis points on every UPI transaction they accept. While the minister insisted customers would not be directly charged, businesses may absorb the fee as a new operating expense, potentially squeezing margins unless offset elsewhere.

Uncertainty Around the Final Decision

The MDR is not yet a done deal. The finance minister made it clear that the final call rests with the NPCI’s steering committee, which will decide only after the bill becomes law. The exact rate, any tiered structure and possible exemptions for smaller merchants remain open questions. This leaves the payments ecosystem in a holding pattern, though many in the industry view the legislative amendment as a strong signal that the government is ready to overturn the four‑year‑old zero‑MDR policy.

Political Positioning

The Congress attack and Sitharaman’s swift rebuttal add a political layer to the debate. By framing the issue as a benefit to the industry and eventually to users, the government is attempting to blunt criticism that it is undoing a popular digital payment perk. Sitharaman’s remark that the matter could have been discussed on the floor of the House if the Congress had engaged constructively also suggests the government is willing to deflect opposition as obstructionist.

What Large Merchants and Payment Players Should Expect Next

For large merchants: Start factoring a potential MDR of 5–7 basis points on UPI transactions into cost projections, especially if you process high volumes. The fee is expected to apply only after the bill passes and the NPCI decides, but modeling the financial impact now will help in budgeting and contract negotiations with payment aggregators.

For payment firms and banks: The amendment opens a path to monetize UPI processing for the first time since 2020. Firms with a large merchant portfolio stand to gain a new, recurring revenue source. Monitor the NPCI steering committee’s deliberations closely; any exemptions for small merchants or tiered rates will influence the bottom line.

For investors in fintech: Watch for clarity on the final MDR structure and the bill’s progress through Parliament. The revenue uplift for listed payment companies could be material, but the timing and scope remain uncertain until the NPCI acts.