Payments Council Rules Out Consumer MDR; PhonePe & Razorpay Back Free UPI

The Payments Council of India (PCI) has clarified that UPI payments will remain free for consumers amid growing speculation over the possible reintroduction of the merchant discount rate (MDR) on select UPI transactions.

“UPI will continue to remain free for consumers,” the industry body said in a post on X, adding that small merchants, including kirana stores and local vendors, will continue to remain protected from MDR charges.

The clarification came after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on Thursday (August 6). The Bill proposes amendments to the Payment and Settlement Systems Act, 2007, enabling the government to prescribe MDR for certain electronic payment transactions. 

While the framework is yet to be finalised, the government is expected to levy an MDR of 0.25% to 0.4% on business UPI transactions above ₹2,000, while person-to-person (P2P) UPI payments are expected to remain exempt. 

UPI MDR: Who Will Pay?

The PCI said any merchant service charges, where applicable, would remain commercial arrangements between merchants and payment service providers and would not be passed on to consumers.

“Merchant service charges, where applicable, are commercial arrangements between merchants and payment service providers. They do not mean that consumers pay to use digital payments,” the council said. 

Earlier this week, finance Minister Nirmala Sitharaman also clarified that MDR would apply only on merchants and not end users.

“MDR applies only on the merchants and not on the end users/customers. It will support the banks and fintech to invest more on infrastructure, innovation & security. All users of UPI will reap the benefits of this investment,” Sitharaman said in a post on X.

She added that the UPI and Services Steering Committee headed by the National Payments Corporation of India (NPCI) is yet to decide on the MDR. The decision will be taken after the Parliament passes the Bill, which proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007.

On Wednesday (August 5), RBI Governor Sanjay Malhotra said someone would have to pay the costs for maintaining and growing the digital payments infrastructure. 

Industry Welcomes The Move

Meanwhile, PhonePe CEO Sameer Nigam today reiterated that consumers would not be charged for making UPI payments.

“UPI is and will remain free for all Indian consumers! Consumers will NOT BE CHARGED anything for making UPI payments,” Nigam said in a post on X.

Razorpay CEO Harshil Mathur said UPI should remain free for consumers and small businesses should continue to be protected.

Earlier this week, Pine Labs CEO Amrish Rau, while applauding the Centre’s move to amend the Payment and Settlement Systems Act, 2007, said that the zero-MDR regime had slowed the growth pace of the UPI ecosystem in the past six years. He added that investments for building and expanding digital payments infrastructure had ballooned almost 300% in the past 12-24 months.  

Notably, UPI has remained free for consumers and operated under a zero-MDR regime for merchants since January 2020, when the government waived merchant charges to accelerate digital payment adoption. 

However, as transaction volumes have surged, banks, fintechs and payment service providers have consistently pushed for the reintroduction of MDR on select merchant transactions, saying the current model is financially unsustainable given the growing investments required in infrastructure, cybersecurity, fraud prevention, compliance and customer support. 

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