New Delhi [India], 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 barred from directly passing on the charges, an IIT Bombay report has warned, calling for changes to the proposed model.
The report estimates that the Merchant Discount Rate (MDR) framework could generate around Rs 18,000 crore 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 making even customers undertaking transactions below Rs 2,000 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 rationalised before implementation”.
Under the revised framework, merchant payments above Rs 2,000 can attract an MDR of up to 0.40 per cent, capped at Rs 300 per transaction. Person-to-person transfers and merchant payments up to Rs 2,000 remain free.
Certain essential-sector transactions attract a flat fee of Rs 5, while capital market transactions carry a charge of 0.02 per cent, subject to a Rs 300 cap.
Using August 2026 data, the report estimates that merchant UPI transactions were worth nearly Rs 9 lakh crore, of which around Rs 6 lakh crore involved payments above Rs 2,000. Assuming an effective average MDR of 0.25 per cent, it projects monthly revenue of Rs 1,500 crore.
The report also flags 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 Rs 26,000 crore in FY26.
Since merchants generally maintain common prices across payment methods, these customers may end up subsidising the rewards and benefits offered to credit card users, it said.
Questioning the need to impose additional charges on digital payments, the report estimates that banks earned a net interest margin of Rs 4.84 lakh crore from current and savings account deposits in FY26. It argues that banks should contribute around 3 per cent of this income, or about Rs 15,000 crore annually, towards sustaining UPI infrastructure.
The report also highlighted the contrast between charging for digital payments and maintaining free ATM withdrawals, despite the high cost of currency management.
They have 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 above Rs 50 crore, capping percentage-based MDR at Rs 40 and directing revenue towards the continued expansion and security of UPI.
The report further said a more targeted framework could support UPI's next phase of growth while keeping consumers at the centre of the digital payments system. (ANI)
UPI MDR may push costs onto consumers despite surcharge ban: IIT Bombay report
