MUMBAI — Reserve Bank of India Governor Sanjay Malhotra has said that discussions around reintroducing a Merchant Discount Rate (MDR) on UPI transactions are "at a premature stage," addressing a question that has generated considerable anxiety across India's payments and fintech ecosystem in recent weeks following a government bill that some industry participants read as signalling a possible policy shift.
MDR is the fee merchants typically pay payment service providers for processing digital transactions. UPI transactions have been MDR-free for consumers and, for most merchant categories, for merchants as well since the RBI and government moved to promote UPI adoption as a zero-cost public digital payments rail — a policy widely credited with UPI's explosive growth to become India's dominant payment mode, processing billions of transactions monthly.
Why the Question Resurfaced
The renewed speculation followed a government bill that industry watchers interpreted as potentially signalling openness to reintroducing some form of MDR on UPI transactions, particularly for larger merchants, as a way to sustain the payments infrastructure ecosystem — payment aggregators and banks have long argued that a zero-MDR regime makes UPI infrastructure economically unsustainable for private participants without continued government subsidy.
Balancing Ecosystem Sustainability Against Adoption Gains
Malhotra's characterisation of the talks as premature suggests the central bank is not yet close to a formal policy decision, even as the underlying tension the question reflects — between UPI's zero-cost model driving mass adoption and the long-term financial sustainability of the private payment infrastructure built around it — remains unresolved. The government has periodically provided direct incentive payments to banks and payment service providers to help offset the cost of maintaining zero-MDR UPI infrastructure, a mechanism that has partially addressed industry concerns without altering the merchant-facing fee structure.
Any move to reintroduce MDR on UPI would be politically and economically sensitive, given UPI's role as a flagship digital-public-infrastructure success story that the government has actively promoted internationally, including through bilateral partnerships extending UPI-style payment rails to other countries. Analysts note that even a modest MDR reintroduction, if it were to happen, would likely need to be carefully calibrated — potentially exempting smaller merchants or transaction categories — to avoid undermining UPI's core value proposition to India's vast base of small merchants and consumers.
What Governor Malhotra's Comments Signal
By explicitly labelling the discussions as premature rather than declining to comment, Malhotra effectively confirmed that some level of internal deliberation on the topic is underway within the government and regulatory apparatus, even while signalling no imminent decision. That framing is likely to be read by the fintech industry as a modest reassurance against any near-term change to UPI's fee structure, while leaving the door open to future policy evolution as the ecosystem's cost dynamics continue to be debated.
For payment aggregators, banks and fintech companies that have built businesses atop UPI rails, the comments offer at least temporary clarity that no immediate MDR reintroduction is planned, even as the structural question of how to fund UPI's infrastructure sustainably over the long term remains open for future policy discussion.
Why It Matters
UPI processes the overwhelming majority of India's digital retail payment volume, and any change to its fee structure would ripple through banks, payment aggregators, fintech startups and hundreds of millions of merchants who have built their business models around a zero-MDR environment. Malhotra's comments suggest the RBI is treading carefully on a question with outsized economic and political stakes, prioritising continued deliberation over a swift policy shift.
• RBI Governor Sanjay Malhotra said talks on reintroducing MDR on UPI transactions are 'at a premature stage.'
• UPI has operated largely MDR-free for consumers and most merchants since its mass-adoption push.
• A recent government bill had stirred industry speculation about a possible policy shift on UPI fees.
• Payment aggregators and banks have long argued zero-MDR UPI is economically unsustainable without subsidy.
• No imminent policy change to UPI's fee structure appears planned, per Malhotra's comments.
