For a small fee, UPI has become stronger

The decision has attracted some criticism. The main Opposition party, for instance, has claimed the move will hurt consumers, especially the poor ones.

3 min readSep 17, 2026 06:05 AM IST First published on: Sep 17, 2026 at 06:05 AM IST

The National Payments Corporation of India (NPCI) has announced that UPI transactions over Rs 2,000 will attract a fee of 0.4 per cent from October 15. Called the Merchant Discount Rate (MDR), the fee, capped at Rs 300 per transaction, applies only to person-to-merchant (P2M) transactions. The Union Ministry of Finance has stated that banks have been “advised” to ensure merchants — e-commerce websites, grocery shops or shopkeepers, receiving more than Rs 1 lakh per month from customers paying through UPI — do not pass on the cost to customers. It has also been clarified that for certain categories of transactions — such as UPI payments received for rail tickets, fuel and agricultural inputs, credit card dues, telecom or utility bills, insurance premiums, and tax payments — a flat merchant fee of Rs 5 will be charged from merchants. There are several reasons why this decision should be welcomed.

These changes follow the passage of the Taxation and Other Laws (Amendment) Act, 2026 last month, which built on the recommendations of the 32nd report of the Standing Committee on Finance. The report had noted that “the absence of MDR makes the UPI ecosystem financially unsustainable”. The MDR is the fee paid to the bank or payment service provider for processing digital transactions, and crores of transactions take place each year. In 2025-26, for instance, there were more than 24,000 crore UPI transactions, and their total value was Rs 314 lakh crore. UPI was introduced in 2016 with an MDR. The zero-MDR policy was adopted in 2020 to expand the adoption of digital transactions. The balanced approach in the latest shift will ensure a sustainable revenue flow to invest, while also enabling seamless digital payments for a large section of people — this could lead to greater reach.

The decision has attracted some criticism. The main Opposition party, for instance, has claimed the move will hurt consumers, especially the poor ones. Such criticism is unfounded. More than 95 per cent of UPI transactions are below the Rs 2,000 threshold. These changes do not apply to person-to-person transactions, and critical public services will have a flat fee. There is an MDR on credit cards as well. Allowing these charges will ensure more competition in the marketplace and better service delivery.