The government has proposed changes to the Payment and Settlement Systems (PSS) Act, 2007 in a move that could eventually reopen the door for merchant discount rate, or MDR, on some UPI transactions. The proposal does not mean fees would immediately apply across all UPI payments, but it signals a possible legal route for charging MDR in selected cases.
Based on industry expectations, any return of MDR on UPI is likely to be narrowly targeted rather than broad-based. Market participants expect the fee, if brought back, to focus on large merchants, commerce-related transactions, and possibly payments above a certain threshold value.
That would suggest a limited approach instead of a blanket charge on every UPI payment. Smaller merchants and lower-value everyday transactions may remain outside the scope if the final framework is designed to protect mass adoption while allowing some cost recovery in higher-value commercial use cases.
The proposal matters because UPI has grown rapidly under a largely zero-fee merchant acceptance model, making it central to digital payments in India. Any policy shift on MDR will be closely watched by merchants, banks and payment companies, since the final impact will depend on how the law is framed and which transaction categories are ultimately covered.
