RBI: Discussions on UPI Transaction Fees Are Premature

Reserve Bank of India (RBI) Governor Sanjay Malhotra has indicated that discussions surrounding the potential imposition of merchant discount rates (MDR) on Unified Payments Interface (UPI) transactions are currently in a premature phase.

"It is very premature to talk right now. The government is still carrying out the amendment. The costs have to be paid by someone. We all want that this public infrastructure should continue to strengthen. Let's wait and watch for further developments on this," Malhotra stated during an RBI post-monetary policy press conference.

The comments follow a recent proposal by the Indian government to amend the Payment and Settlement Systems Act (PSSA), 2007, which could introduce an additional fee on UPI transactions. This amendment would grant the central government the authority to directly notify which electronic payment methods will be exempt from MDR charges.

Reports suggest that the government may levy a 0.25% to 0.4% MDR on UPI transactions exceeding 2,000 rupees (approximately $24) made to businesses, while person-to-person (P2P) transactions are likely to remain exempt. Analysts estimate that such MDR could generate an additional revenue of 5,000 to 10,000 crore rupees (around $60 million to $120 million) by fiscal year 2028.

UPI previously had MDR charges between April 2016 and January 1, 2020, before being made free for business-to-consumer (P2M) transactions. The payments industry has since advocated for the return of MDR, citing the financial unsustainability of processing billions of transactions under a zero-fee model. The proposed legislative changes are expected to primarily benefit payment aggregators focused on enterprise clients.