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Amid the increasing uncertainty among the Unified Payments Interface (UPI) users regarding the charges of fee for their transaction of over Rs 2000, the central government has clarified that transactions will continue to remain free for users.

The   further said that a merchant discount rate (MDR) on UPI will only apply to a ‘limited set of merchant transactions over a certain threshold’ at a fee lower than credit and debit cards. However, this is subject to MDR charges being introduced in the future.

“Consumers making payments will not face any transaction charges. As and when MDR charges are introduced, they will apply only to a limited set of merchant transactions, above a certain threshold, at a nominal rate, far lower than debit or credit card MDRs,” the Ministry of Finance said on Saturday.

The peer-to-peer (P2P) transactions would continue to remain free, it added.

It called the amendment an enabling provision to ensure UPI’s long-term sustainability, technological advancement, and resilience against emerging risks.

“Some of the media reports have suggested that external influences may be driving policy changes. This is unfounded, completely false and misleading. If external pressure had been a factor, the government would not have introduced UPI in 2016 or made it free of charge for both merchants as well as citizens since January 2020 and ensured that it became the world’s largest real time interoperable payment system,” it clarified.

Industry leaders believe that the latest clarification about the threshold hints at an MDR being levied on only large merchants above a certain annual turnover.

Harsh Vardhan Masta, CEO, PB PAY (PB Fintech) said, “We believe that the proposal to introduce Merchant Discount Rate on UPI P2M transactions above Rs 2000 for large merchants will lay the foundation for a more sustainable and resilient digital payments ecosystem. MDR’s return is not a step backward - it is a pragmatic move forward. It balances sustainability with innovation, ensuring that India’s digital payments ecosystem remains secure, inclusive, and resilient in the face of growing demands."

"A viable MDR framework provides the financial backbone that enables payment aggregators, banks, and fintechs to continue investing in infrastructure, cybersecurity, compliance, and innovation," he added.

He further believed that MDR rule will also be crucial in curbing the risks involved with the UPI usages. "As cyber threats become more sophisticated and regulatory expectations continue to evolve, sustainable revenue streams are essential to strengthen fraud prevention capabilities, enhance payment security, and build resilient digital infrastructure."