RBI Governor Sanjay Malhotra says it is too early to confirm UPI charges but acknowledges that the country’s digital payments infrastructure has ongoing costs that must be funded as Parliament considers amendments to payment laws.
The debate over UPI transaction charges has intensified after RBI Governor Sanjay Malhotra indicated that India’s digital payment infrastructure cannot remain cost-free indefinitely.
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Speaking after the Reserve Bank of India’s monetary policy announcement, Malhotra said it is too early to conclude whether charges will be introduced but acknowledged that someone ultimately has to bear the cost of operating the UPI ecosystem.
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What Did the RBI Governor Say?
Responding to a question on whether UPI transactions could soon attract charges, RBI Governor Sanjay Malhotra said:
“It is very premature to talk right now. The government is still carrying out the amendment. The costs have to be paid by someone.”
He added that the priority is to ensure India’s digital payments infrastructure continues to grow and remain sustainable.
Malhotra further clarified that the costs already exist but are currently being absorbed elsewhere.
“The cost is already getting passed on. It may not be directly to the user, but someone is paying the cost.”
Why Is MDR Being Discussed Again?
UPI transactions are currently free for consumers as well as merchants because the government removed the Merchant Discount Rate (MDR) on UPI payments in January 2020.
Instead, the government has compensated banks and payment service providers through incentive schemes.
However, with UPI processing billions of transactions every month, the cost of maintaining payment infrastructure has increased substantially, while government subsidies cover only part of these expenses.
This has revived discussions on bringing back MDR for certain transactions.
What Is Being Proposed?
According to reports, amendments to the Payment and Settlement Systems Act, recently tabled in Parliament by Finance Minister Nirmala Sitharaman, could allow MDR on select UPI transactions.
The proposal under discussion includes:
- MDR of 0.3% to 0.5%
- Applicable only on transactions above ₹2,000
- Limited to large merchants crossing a specified turnover threshold
No final decision has been announced.
Will Consumers Have to Pay?
Based on the proposal currently being discussed, ordinary consumers are not expected to pay any fee.
Instead, the MDR would be charged to eligible large businesses accepting UPI payments.
This means:
- Paying your neighbourhood grocery or vegetable vendor would likely remain free.
- Large retail chains accepting high-value UPI payments could pay a small processing fee.
However, the proposal is still under consideration and no final rules have been notified.
Why Does UPI Need Funding?
Although UPI appears free to users, operating the network involves significant costs, including:
- Payment processing infrastructure
- Bank settlement systems
- Fraud detection and cybersecurity
- Technology upgrades
- Server maintenance
- Customer support
Currently, these expenses are shared between the government, banks and payment service providers.
The RBI Governor indicated that a long-term funding mechanism will be necessary to keep the ecosystem sustainable.
What Happens Next?
At present, no UPI charges have been introduced.
The proposed legal amendments simply create the possibility of reintroducing MDR for specific categories of merchant transactions.
Whether the government ultimately chooses MDR or another funding model remains to be seen.
Until an official notification is issued, UPI payments for consumers continue to remain free.
Key Highlights
- RBI Governor Sanjay Malhotra said it is too early to confirm UPI transaction charges.
- He stated that someone must ultimately bear the cost of running UPI infrastructure.
- Parliament is considering amendments that could permit MDR on certain UPI transactions.
- Reports suggest MDR of 0.3%–0.5% may apply only to transactions above ₹2,000 at eligible large merchants.
- Everyday consumer UPI payments and small merchants are expected to remain unaffected under the proposal.
- No final decision has been announced by the government.
FAQs
Are UPI transactions becoming chargeable?
No. UPI transactions remain free. The government is considering amendments that could allow MDR on certain merchant transactions, but no final decision has been announced.
What did the RBI Governor say about UPI charges?
RBI Governor Sanjay Malhotra said it is premature to discuss charges but noted that maintaining the UPI ecosystem involves costs that “have to be paid by someone.”
What is Merchant Discount Rate (MDR)?
MDR is a fee paid by merchants to banks and payment service providers for processing digital payment transactions.
Will consumers have to pay UPI charges?
Based on the proposal being discussed, consumers are not expected to pay directly. Any MDR, if introduced, would likely apply to eligible large merchants on higher-value transactions.
Will small shopkeepers be affected?
According to the proposal under discussion, small merchants and routine consumer UPI payments are expected to remain outside the scope of MDR.
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