NEW DELHI: Banks and payment system providers will not be allowed to levy charges on unified payments interface (UPI) transactions of up to ₹2,000 or on payments made through RuPay debit cards, the Finance Ministry said in a gazette notification on September 14.
“No bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment,” the notification said, specifying UPI transactions up to ₹2,000 and RuPay debit card payments.
The notification follows the Government’s amendment to the Payment and Settlement Systems (PSS) Act, 2007, which has created an enabling framework for imposing a merchant discount rate (MDR) on select digital payments.
The move is aimed at creating a sustainable revenue model for the digital payments ecosystem, while ensuring that the cost of maintaining technology infrastructure, cyber security and fraud-prevention systems does not continue to be borne entirely by banks and payment service providers.
“The Finance Ministry notification, which sets an expected threshold, is a step towards that direction,” a banking industry source said. Industry estimates suggest that an MDR of around 0.25-0.5 per cent could eventually be imposed on merchant payments above ₹2,000. Person-to-person (P2P) transactions are expected to remain outside the proposed charge structure.
In August, the Government had said the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), would decide on the MDR rates.
Finance Ministry data shows that only around 4 per cent of person-to-merchant (P2M) transactions by volume were above ₹2,000 in FY26. About 20 per cent of person-to-person transactions crossed the threshold, indicating that a large majority of digital payments would continue to remain outside any eventual levy.
Banks and payment service providers have for years argued that the cost of running the UPI infrastructure has been rising sharply. A Standing Committee on Finance report in March had also flagged the absence of MDR as a concern for the financial sustainability of the UPI ecosystem.
MDR, usually ranging between 1 and 3 per cent for card transactions, is paid by merchants to banks and payment processors to cover transaction processing, settlement and infrastructure costs.
Since January 2020, MDR has been zero on RuPay debit card and UPI transactions as part of efforts to accelerate digital payments.
The Government has compensated banks and payment ecosystem players through incentives for low-value UPI P2M transactions of up to ₹2,000 made to small merchants. Large merchants are not covered by the scheme.
“For banks and payment service providers who have absorbed processing costs for years across technical infrastructure, cyber security and risk management without direct monetisation, MDR, when effective, could unlock a sustainable revenue model,” the source said.
