A market-driven economic model for UPI is essential to fund escalating cybersecurity, scalability, and infrastructure costs, UPI operator NPCI’s MD and CEO Dilip Asbe said. 

Speaking at the 13th SBI Banking & Economics Conclave 2026, Asbe defended the move to introduce merchant discount rate (MDR) charges on UPI. The MDR regime will come into effect from October 15.

Asbe said that the tools currently available to attackers are more powerful than those deployed within parts of the payments ecosystem. He added that banks and payments companies would need to continuously invest in AI to protect their systems and retain users’ trust.

“The ability and the tools with the hackers are really very powerful compared to what we could actually use inside. And somewhere AI is fairly expensive to use, and we’ll have to continue to invest, use AI to make our systems fully protected… (so that) the trust in the payment system is fully maintained. So again, a lot of investments will be required on that,” he said.

His remarks came days after NPCI introduced an MDR framework for select P2M UPI transactions. Under the new framework, eligible UPI merchant payments exceeding ₹2,000 will attract an MDR of 0.4%, capped at ₹300 per transaction. Transactions in certain categories, including fuel, railways, telecom, insurance, and capital markets, will attract lower or fixed charges.

Asbe said the cost of maintaining and expanding the payments infrastructure has risen sharply. He claimed that certain server hardware that cost around ₹20 Lakh a year ago now costs nearly ₹1 Cr.

The NPCI chief estimated that the new UPI MDR framework could generate ₹13,000 Cr to ₹15,000 Cr during its first year.

Asbe also said that the growth of digital payments penetration has slowed because of insufficient investment across the ecosystem.

Payment companies have already announced fresh investments following the introduction of the new MDR framework.

PhonePe today said it would hire more than 20,000 frontline sales personnel and deploy more than 50 Lakh payment devices over the next one year to scale digital payments in rural areas.

The Walmart-owned fintech major cited the MDR framework as one of the factors enabling it to make long-term investments in merchant onboarding and payment infrastructure.

Meanwhile, Pine Labs announced plans to deploy 10 Lakh soundboxes across India to widen UPI acceptance. “We wanted to invest back into the payments ecosystem as new monetisation opportunities emerged,” Pine Labs CEO Amrish Rau said.

Most UPI Transactions To Remain Free 

Asbe said the new MDR policy has been designed to shield consumers and small merchants from additional costs.

Around 96% of UPI transactions by volume and 75% by value will remain outside the charging framework. Besides, about 75% of merchants accepting UPI payments have never received a single transaction exceeding ₹2,000 and, therefore, will remain unaffected by the MDR.

Businesses processing more than ₹1,000 Cr in digital payments annually are expected to contribute around 80% of total MDR collections. Another 10% would come from merchants processing more than ₹1 Cr annually, according to Asbe.

As these merchants already accept credit cards and pay higher MDR fees for doing so, NPCI believes they are unlikely to pass on the additional cost of MDR on UPI to the consumer.  

Asbe acknowledged that merchants accounting for the remaining 10% of the chargeable payment value might attempt to pass the cost on to customers.

“The remaining 10%, yes, there is a possibility, and the banks, NPCI, the acquirers, and the payment aggregators will have to work towards ensuring that the charges are not passed back,” he said.

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