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

The Payments Council of India (PCI) has firmly stated that Unified Payments Interface (UPI) payments will remain free for consumers, despite recent debate over the potential reintroduction of the merchant discount rate (MDR) on specific UPI transactions. The council clarified on social media platform X that small merchants, including traditional shops and local vendors, will continue to be shielded from MDR charges.

This decision followed the passage of the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha on August 6, which proposes amendments to the Payment and Settlement Systems Act, 2007 to allow the government to prescribe MDR for certain electronic payment transactions. The government is expected to levy an MDR of 0.25% to 0.4% on business UPI transactions exceeding ₹2,000, while person-to-person (P2P) UPI payments are slated to remain exempt.

PCI emphasized that any potential merchant service charges, where applicable, would be a commercial arrangement between merchants and payment service providers, not something that would be passed onto consumers. The council reiterated that merchant service charges are commercial agreements between merchants and payment service providers, and they do not imply end users/customers should bear the costs.

Finance Minister Nirmala Sitharaman echoed these sentiments, stating that MDR would only apply to merchants and not end users, adding that the move would support banks and fintech companies to invest further in infrastructure, innovation, and security. UPI's zero-MDR status has been credited with boosting its growth, as transaction volumes have surged and banks, fintechs, and payment service providers have called for the reintroduction of MDR on select merchant transactions, citing the need for continued investment in infrastructure, cybersecurity, fraud prevention, compliance, and customer support.