Responding to questions on charges on UPI transactions, RBI Governor Sanjay Malhotra asserted that it is very premature to talk about it right now. “The government is still carrying out the amendment. The costs have to be paid by someone. We all want that this public infrastructure should continue to strengthen. Let’s wait and watch for further developments on this,” he said.
The statement came on Wednesday after the RBI announced the repo rate. Reports have been making the rounds that a Merchant Discount Rate (MDR) might be levied on UPI transactions. On this, he added, “The cost is already getting passed on. It may not be directly to the very user, but someone is paying the cost. This is what I meant when I said someone will have to pay the cost. What is important is that we continue to invest and we continue to find the means, whether it is MDR or other things. Let’s wait and see how the situation evolves.”
Why a charge on UPI transactions?
The UPI charges already exist. Banks and payment companies absorb real costs to keep the system running. Since January 2020, they have not been allowed to charge merchants an MDR on UPI transactions. The government stepped in with subsidies instead. UPI exploded, and the subsidy hasn’t kept pace with the boom. Billions of transactions every month, lakhs and crores of Rupees are transacted across the nation. And the incentive payouts cover only a slice of what banks and payment firms actually spend to keep the rails running. Banks and payment service providers incur expenses on:-
Maintaining servers and payment infrastructure.
Fraud detection and cybersecurity.
Settlement and reconciliation systems.
Technology upgrades and customer support.
So, the question the government now asking is: should the merchants start paying again? Here is where it gets specific– Finance Minister Nirmala Sitharaman tabled changes to the Payment and Settlement Systems Act in Parliament. The amendment opens the door for MDR to return on ‘select’ UPI transactions.
So what do they mean by “select”?
The proposal being discussed is an MDR of 0.3% to 0.5%, applied only on transactions of ₹2,000 and above, and only for larger merchants crossing a turnover threshold. The government has stayed baised on this, exempting small shopkeepers and daily consumers from the proposal.
Here is how the Governor explained it
Carefully drawing a line between taxes on consumers and fees on businesses, Malhotra reiterated that running a payments network this size isn’t free. Servers, infrastructure, fraud checks, settlement systems—all of it costs. And right now, the government picks up part of that tab through subsidies. The rest is quietly absorbed by banks and payment service providers.
His point was clear: that arrangement can’t stretch indefinitely. Somewhere, the money has to come from. Now, it can either be the government, or the merchant, or eventually the customer. This still remains a debate.