UPI has become an everyday part of India’s economic life, from a roadside tea stall to a major retail outlet. The decision to introduce Merchant Discount Rate (MDR) on certain high-value merchant transactions therefore deserves close scrutiny. The government has clarified that UPI transactions up to ₹2,000 will remain free and that person-to-person payments will not attract charges. The new framework, however, introduces a 0.4% MDR on person-to-merchant transactions above ₹2,000, effective October 15.
There is a reasonable argument that a payment infrastructure handling billions of transactions needs a sustainable revenue model to meet rising costs of technology, cybersecurity and fraud prevention. At the same time, the success of UPI has been built partly on its simplicity and the absence of transaction charges. Any additional cost, even if formally imposed on merchants and payment participants rather than consumers, raises questions about whether some businesses may eventually seek to recover it from customers. The government has said merchants should not pass the MDR on to customers, making effective enforcement and transparency particularly important.
The larger lesson is that digital public infrastructure must remain both sustainable and accessible. UPI should not become a victim of its own success by making digital payments unnecessarily costly or complicated. At the same time, maintaining a massive payment network entirely without a viable revenue model may not be sustainable indefinitely. The challenge before policymakers is to strike a transparent balance: protect ordinary users and small merchants, ensure that charges remain proportionate, and clearly explain how the revenue will strengthen the security and resilience of the system. The debate should therefore be about how to preserve UPI’s accessibility while ensuring that its long-term costs are responsibly met.