Talks on UPI MDR structure still premature, says RBI Governor Malhotra

Governor Sanjay Malhotra says discussions on a merchant discount rate for UPI are premature, stressing the need for sustained investment to strengthen India's digital payments infrastructure.

Discussions on a potential merchant discount rate (MDR) structure for Unified Payments Interface (UPI) are still premature, and continued investment is needed to further strengthen the real-time payments system, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday.

 

He said the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to amend the Payment and Settlement Systems Act, 2007, is still under consideration. The Bill was tabled in the Lok Sabha on Tuesday.

 

“It is very premature. Right now, the government is still carrying out the amendment. The costs have to be paid by someone. We all want this public infrastructure to continue to strengthen and become more efficient. We continue to do that and it is our primary focus as of now,” Malhotra said at the Monetary Policy Committee (MPC) press conference.

 

He said the cost of running the payments system is already being borne by different participants in the ecosystem, and not necessarily by users.

 

“To answer partly on whether it (cost) is getting passed on, in some way it is already getting passed on. It may directly not be on a ‘user-pays principle’, but someone is paying the cost. What is important is that we continue to invest and continue to find the means, whether it is MDR or other things. Those are matters of detail. Let’s see how the situation evolves going forward,” he added.

 

MDR is the fee merchants pay to banks and payment service providers for processing digital payment transactions. At present, merchants do not pay MDR on UPI transactions, unlike debit and credit card payments.

 

The Taxation and Other Laws (Amendment) Bill proposes to amend the Payment and Settlement Systems Act, 2007, to empower the central government to decide which digital payment methods remain free and which can attract charges, replacing the current mechanism linked to the Income Tax Act. The change could potentially pave the way for an MDR on UPI transactions.

 

However, introducing an MDR would require the Bill to become law, followed by changes to the MDR framework and negotiations on fee rates among industry participants, including UPI apps, banks and acquirers such as payment aggregators.

 

According to a note by global brokerage Jefferies, an MDR of 15-30 basis points (bps) on UPI transactions above ₹2,000 could generate ₹5,000 crore-₹10,000 crore in revenue by FY28.