For millions of Indians, using the QR code and doing the payment in a few seconds have become as easy as making payments using cash money. This is exactly why the recent discussions over the charges for UPI payments have generated so much unease among people.<\/p>\n
However, the problem is that there is a difference between what has happened and what Indians think that has happened.<\/p>\n
The Lok Sabha has recently passed a bill which allows the government to authorize banks and other payment service providers to charge some fees for certain electronic transactions, one of which is UPI. But that does not mean that the fees for all the UPI payments are automatically levied now. The pricing process, if implemented, will be notified.<\/p>\n
The thing is that the discussion is not only about whether Indians have to pay \u20b91, \u20b92 or any percentage on each of their transactions. The issue is also about who will actually cover the huge costs of the Indian digital-payment boom.<\/p>\n
A key reason for UPI\u2019s popularity was a strikingly simple concept: digital payments could be faster and easier than cash without the inclusion of any kind of transaction charge.<\/p>\n
The concept of zero MDR was crucial in achieving this concept. MDR stands for Merchant Discount Rate, and this basically means the fee that is incurred on the processing of any digital payment, and which is usually paid by the merchant side of the ecosystem and not automatically subtracted from the bank account of the customer.<\/p>\n
The government exempted MDR for any prescribed UPI and RuPay debit card transaction from January 2020. The government then incentivized the ecosystem in order to help cover the banks and payment providers that participate in the process. An answer in the parliament in 2025 said that around \u20b98,730 crore was offered via the incentive program over four fiscal years.\u00a0<\/p>\n
The outcome was a very strong one: merchants could use a QR code without the need for any transaction charge, and customers could make any payments without having to think about the costs involved.<\/p>\n
The problem is the scale. UPI today handles a huge volume of transactions every month. Even those payments which appear to be free require a technology ecosystem which consists of banks, payment platforms, infrastructure firms, fraud detection, cloud computing, cybersecurity activities, customer service, and settlement mechanisms operating invisibly behind the scenes.<\/p>\n
What the user sees is a QR code and a confirmation message. What the financial system sees is a costly technology ecosystem which needs to run perpetually.<\/p>\n
If the system continues to expand while keeping transactions revenue capped, then who will pay for the future generations of infrastructure? The financial sector can cover the costs at some point, but it gets increasingly difficult to finance a growing public digital payment ecosystem.<\/p>\n
Sanjay Malhotra, RBI Governor, has pointed out the economic problem of who will have to cover the cost of the payments system in the economy.<\/p>\n
MDR is frequently considered as a straightforward \u201cUPI tax\u201d.<\/p>\n
MDR is neither a tax nor a mandatory charge from consumers.<\/p>\n
MDR is a transaction processing fee that is related to the merchant\u2019s transaction. In case of implementation of MDR, the merchant ecosystem may pay a relatively small portion of the transaction to the parties that process it.<\/p>\n