New Delhi, October 12 (ANI): The revised fee framework for Unified Payments Interface (UPI) transactions could indirectly burden consumers through higher retail prices, even as merchants are prohibited from directly passing on the charges, according to a technical report by professors at IIT Bombay. The report calls for changes to the proposed model.
The report estimates that the Merchant Discount Rate (MDR) framework could generate around 18,000 crore rupees annually for payment service providers. However, it argues that businesses may incorporate the additional expense into their general selling prices to protect profit margins, potentially forcing even customers making transactions below 2,000 rupees to bear part of the cost.
“UPI may lose public trust if it is floated as per the presently proposed MDR framework,” the report said, adding that the framework must be “tweaked and rationalized before implementation.”
Under the revised framework, merchant payments above 2,000 rupees can attract an MDR of up to 0.40%, capped at 300 rupees per transaction. Person-to-person transfers and merchant payments of up to 2,000 rupees remain free.
Certain transactions in essential sectors attract a flat fee of 5 rupees, while capital market transactions carry a charge of 0.02%, subject to a cap of 300 rupees.
Using August 2026 data, the report estimates that merchant UPI transactions were worth nearly 9 lakh crore rupees, of which around 6 lakh crore rupees involved payments above 2,000 rupees. Assuming an effective average MDR of 0.25%, it projects monthly revenue of 1,500 crore rupees.
The report also highlights an existing burden on UPI users at outlets that accept credit cards. It estimates that the cost of credit card merchant fees indirectly borne by users of UPI, debit cards and cash could have reached 26,000 crore rupees in fiscal year 2025-26.
Since merchants generally maintain the same prices across payment methods, these customers may end up subsidizing the rewards and benefits offered to credit card users, the report said.
Questioning the need to impose additional charges on digital payments, the report estimates that banks earned net interest margins of 4.84 lakh crore rupees from current and savings account deposits in fiscal year 2025-26. It argues that banks should contribute around 3% of this income, or approximately 15,000 crore rupees annually, toward sustaining UPI infrastructure.
The report also highlighted the contrast between charging for digital payments and allowing free ATM withdrawals, despite the high cost of currency management.
The authors called for exempting debt collection and loan repayment transactions from MDR, citing the risk of increasing the cost of digital repayments, particularly for microfinance borrowers.
The report recommends restricting charges to online merchants and businesses with annual turnover exceeding 50 crore rupees, capping percentage-based MDR at 40 rupees, and directing the revenue toward the continued expansion and security of UPI.
It further said a more targeted framework could support UPI’s next phase of growth while keeping consumers at the center of the digital payments system. (ANI)
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