Seamless digital payments have a price

Last week, the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, which aims to introduce fees for UPI and RuPay debit card payments. The zero MDR policy, implemented in 2020, was intended to encourage digital transactions by keeping them affordable. However, the Standing Committee on Finance reported that the lack of MDR is making the UPI ecosystem financially unsustainable.

The Union government had provided Rs 8,730 crore in incentives between 2021-22 and 2024-25, but this only amounts to 11% of the industry's costs and 14% of the potential MDR revenue. While some are concerned about potential charges on UPI, the finance ministry stated that fees will only apply to transactions above a certain threshold and on a limited number of merchant transactions.

P2M transactions accounted for 63% of transaction volumes in the first half of 2025, but only 29% of value. In 2025-26, only 4% of P2M transactions exceeded Rs 2,000, accounting for two-thirds of the value. This indicates that, if fees are introduced at a higher threshold, most users will not be affected. Implementing MDR will require investment in infrastructure to handle more transactions and customers smoothly.

A steady source of revenue would also encourage more players to enter the market, increasing competition in an industry dominated by PhonePe and Google Pay, which handle roughly 80% of transactions.