RBI Governor Sanjay Malhotra Discusses UPI Transaction Costs, Says No Final Decision on MDR Yet

Governor Sanjay Malhotra of RBI has voiced his reservations on the demand for a Merchant Discount Rate (MDR) on some UPI (Unified Payments Interface) payments, saying that no final decision has been taken and discussions are still at an early stage. He has made comments after the government had already proposed laws to abolish the need for a zero MDR on some UPI payments and allow merchants to charge to make payments.

"Someone Has to Bear the Cost."

Malhotra had admitted to the reality that running India's digital payments infrastructure is expensive. He added that while UPI has changed the business of digital payments and is a public good, “someone has to pay the cost” of maintaining and expanding the ecosystem. But it is still premature to predict who will pay the price if MDR is introduced, he said.

Consumers Are Unaffected

The proposal being discussed is not to charge individual UPI users. Instead, reports suggest the government is considering allowing an MDR of around 0.25% to 0.4% (or 0.3% to 0.5% in some proposals) on large merchant transactions above ₹2,000. In such a scenario, merchants (not consumers) would pay the processing fee, but no final structure has been approved.

Why the Debate Matters

Since the Merchant Discount Rate (MDR) on UPI payments was removed in 2020, banks and payment service providers have been processing transactions without earning merchant fees. This policy change has fueled rapid growth in UPI usage, making it the backbone of India’s digital payments ecosystem.

However, industry stakeholders argue that the current model is unsustainable. With transaction volumes surging, they believe a revenue framework is essential to support infrastructure, drive innovation, and strengthen cybersecurity. Without such a model, the long‑term viability of UPI could be at risk. Commenting on the issue, Malhotra emphasized that the decision must balance the interests of consumers, merchants, banks, fintech companies, and the wider digital payments ecosystem. He noted that while UPI has transformed India’s financial landscape, the next phase of growth requires a sustainable approach that ensures both accessibility and profitability.

What’s next?

For now, UPI transactions are free for users and there is no official decision to impose MDR on any type of transactions. The proposed amendment only sets up the legal framework for merchant charges to be implemented in the future if the government decides to adopt them. Any final policy, such as the rate, transaction threshold, and applicability, will be announced only after further consultation and regulatory decisions.