India Government Notifies New Rules for UPI Transactions

India's finance ministry has issued new regulations that permit the reintroduction of Merchant Discount Rate (MDR) charges on higher-value Unified Payments Interface (UPI) transactions. The updated rules under the Payment and Settlement Systems Act (PSSA), 2007, however, continue to exempt UPI transactions and RuPay debit card payments up to ₹2,000 from any charges.

In a gazette notification dated September 14, the government directed banks and other system providers not to impose any charges on these specified transactions. This move opens the door for MDR to be applied to larger digital payments, a possibility that was previously limited by a law prohibiting any charges on all UPI payments.

The finance ministry has now defined a threshold above which UPI transactions can be charged. The UPI and Services Steering Committee, led by the National Payments Corporation of India (NPCI), will decide the specific MDR framework and rates. Reports suggest that UPI transactions exceeding ₹2,000 could potentially face a charge of 0.4% of the transaction value.

The zero-MDR regime was initially implemented in 2020 to boost digital payment adoption. UPI has since become India's dominant online payment method, processing nearly ₹30 lakh crore in transactions in August 2023. However, banks and payment companies remain reliant on government incentives to cover transaction processing costs, with a parliamentary panel noting that existing incentives do not adequately cover infrastructure maintenance expenses. The introduction of MDR is expected to provide a significant revenue stream for fintech companies.