The government is right to clarify that the amendment to the Payment and Settlement Systems Act, 2007, doesn’t mean that users will suddenly have to pay for UPI transactions. UPI will remain free for consumers, person-to-person transactions will continue without charge, and any future merchant discount rate (MDR), if introduced, will be nominal and limited to a specified category of merchant transactions. Most merchant transactions, the government assures, will remain outside its ambit. That clarification is welcome. But the amendment nevertheless marks an important shift: it creates the legal space for a departure from the zero-MDR regime that has been central to UPI’s phenomenal growth since its introduction. The question is no longer whether UPI can be monetised, but how far, and at whose cost.
There is a legitimate case for a sustainable revenue model. UPI has grown into the backbone of India’s digital payments ecosystem, processing enormous volumes at a cost that cannot indefinitely be met through government incentives. Banks, payment-system operators and other participants bear substantial expenses on infrastructure, technology, cybersecurity and fraud prevention. The payments industry has consequently been pressing for an MDR regime for several years. Also, a system of such scale cannot remain permanently dependent on taxpayer-funded support. If UPI is to continue expanding into smaller towns and rural India, and if its infrastructure is to keep pace with technological and security demands, there must be adequate resources for investment and innovation.
But this is where caution is imperative. UPI’s greatest achievement has been to make digital payments almost invisible in everyday life—instant, ubiquitous and free at the point of use. Any revenue model that introduces friction, however small, risks weakening that advantage. An MDR imposed on merchants may not be a direct charge on consumers, but costs have a way of travelling through the economy. Merchants may absorb some of the burden, but some could eventually be reflected in prices or passed on to customers. If MDR is introduced, it should target those best placed to absorb it, with clear thresholds and safeguards against its cascading into consumer charges. The government must resist the temptation to view UPI primarily as a revenue opportunity. Beyond the economics of transactions, it has become an important piece of India’s public digital infrastructure. India should monetise the ecosystem with care, but it must not tax the success of UPI.