Government weighs return of merchant fees on UPI, RuPay transactions: Why user may not have to worry

The government is considering bringing back merchant charges on UPI and RuPay debit card payments, Economic Times reported, citing two senior bankers. Currently, businesses do not pay any fees when customers use UPI or RuPay debit cards. Before 2022, merchants had to pay a small fee, called the merchant discount rate (MDR), to banks for processing such transactions.
If the government brings back MDR charges on UPI and RuPay debit card payments, it won’t directly affect users as they won’t be charged a fee for making payments

“A formal proposal to bring back MDR on UPI payments for large merchants was sent to the Union government by the industry (banks) and now the concerned departments are considering it positively,” one of the bankers said. A second banker explained that large businesses already pay MDR for card payments made via Visa, Mastercard, and credit cards. The industry believes they should also pay for UPI and RuPay debit card transactions.
“The logic is that if large merchants who have card machines are paying MDR on other payment instruments like Visa and Mastercard debit cards and all forms of credit cards, then why can they not pay charges for UPI and RuPay debit cards?” the banker added.
Before the MDR was removed in 2022, merchants paid less than 1% of the transaction amount as a fee. Since then, UPI has become the most popular retail payment method, and many in the industry believe the waiver should no longer apply to all businesses.

Fintech companies, represented by the Payments Council of India, have argued that large businesses can afford a small charge. The chairman, Vishwas Patel, told ET in February that the government is currently using taxpayer money to cover these costs.
Payment companies say bringing back MDR is necessary for their business. The cost of compliance with new regulations has increased, and without a fee on UPI payments, many businesses in this sector may struggle to remain profitable.
The government has been providing subsidies to banks and fintechs to cover these processing costs. However, the industry says these subsidies are not enough. In this year’s budget, the government reduced its payments subsidy from ₹3,500 crore to ₹437 crore.