Will UPI transactions remain free? RBI Governor explains who may bear the cost

While there is no final decision yet, RBI Governor Sanjay Malhotra has said it is too early to say who will ultimately bear the cost if such a fee is introduced.

In Short

• Government may allow MDR on some UPI transactions in future
• RBI Governor says it is too early to decide cost bearer
• No final decision or implementation date announced yet

Will UPI payments remain completely free in the future? That question has come into focus after the government proposed changes that could allow a Merchant Discount Rate (MDR) on certain UPI transactions. While there is no final decision yet, Reserve Bank of India (RBI) Governor Sanjay Malhotra has said it is too early to say who will ultimately bear the cost if such a fee is introduced.

Speaking after the RBI's monetary policy announcement on August 5, the Governor said the government's proposal is still under discussion and no conclusions should be drawn at this stage.

RBI SAYS DISCUSSION IS STILL AT AN EARLY STAGE

Responding to questions on the proposal, Malhotra said the government is still working on the amendment and the matter has not been finalised.

"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 said.

He added that the RBI's priority continues to be making digital payments accessible, affordable, safe and sustainable for everyone.

WILL CUSTOMERS HAVE TO PAY?

When asked whether users could eventually end up paying for UPI transactions, the Governor said consumers already pay for payment systems in one way or another, even if the cost is not shown separately as a transaction fee.

However, he did not say that customers would be charged directly if MDR is introduced. Instead, he stressed that it is too early to comment on how the costs, if any, would be shared.

WHAT IS THE GOVERNMENT'S PROPOSAL?

The amendment introduced by Finance Minister Nirmala Sitharaman does not immediately impose any charges on UPI transactions.

Instead, it creates a legal framework that would allow the government to introduce an MDR at a later stage if it decides to do so.

According to a Reuters report, officials are still discussing how such a system could work. No final decision has been taken on the fee, the transactions that may be covered or the date of implementation.

WHICH TRANSACTIONS COULD BE AFFECTED?

One proposal being considered is to levy an MDR of 0.3% to 0.5% on UPI transactions above Rs 2,000.

The proposed charge is expected to apply only to merchants with an annual turnover of more than Rs 1.5 crore. This means customers are unlikely to pay any additional fee directly, while smaller businesses may continue to enjoy fee-free UPI transactions.

WHAT IS THE MERCHANT DISCOUNT RATE?

Merchant Discount Rate, or MDR, is a fee paid by merchants to banks and payment service providers for processing digital payments.

Businesses already pay MDR on card transactions. Credit card payments generally attract a fee of around 1.5%, while debit card charges are usually lower, depending on the bank and payment network.

UPI transactions, however, have remained free for merchants and customers, making the platform one of the most widely used digital payment systems in the country.

NO FINAL DECISION YET

For now, nothing changes for UPI users.

The proposal only gives the government the legal option to introduce MDR in the future. The government has not announced whether it will implement the fee, what the final rate would be or when any such change could come into effect.

Until then, UPI transactions will continue under the existing fee-free system.

- Ends