NEW DELHI — Finance Minister Nirmala Sitharaman said on Friday that the Reserve Bank of India’s (RBI) latest decision to revise the merchant discount rate (MDR) for Unified Payments Interface (UPI) transactions was made on a professional basis and without external pressure. The statement came after the RBI announced a new MDR framework that aims to keep transaction costs low for merchants while sustaining the growth of digital payments.
Background of the UPI MDR framework
UPI, launched in 2016, has become the backbone of India’s instant payment ecosystem, processing more than 5.5 billion transactions in 2025 alone. The MDR is the fee that merchants pay to payment service providers for each UPI transaction. Historically, the rates have been a point of contention between banks, merchants and the government, with calls for a cap to prevent excessive cost burdens on small businesses.
The RBI’s UPI policy committee, which includes representatives from the National Payments Corporation of India (NPCI), major banks and the Ministry of Finance, reviewed the existing rate structure in early September. The committee’s report, released in a press statement, recommended a tiered MDR scheme that would reduce rates for high‑volume merchants and introduce a lower baseline for all participants.
Finance Minister’s remarks
In a statement released by the Ministry of Finance, Sitharaman said the committee’s recommendation was “completely professional” and that “no external pressure influenced the decision.” The minister added that the framework was designed to balance the interests of merchants, banks and the wider economy, and that it would be implemented in phases to allow stakeholders to adjust.
She further noted that the RBI had consulted industry bodies, including the Association of Indian Banks and the National Payments Corporation of India, before finalising the rates. “The decision reflects a careful assessment of market dynamics and the need to keep transaction costs affordable for small and medium enterprises,” the statement read.
Industry response
Banking and merchant associations welcomed the move, citing the potential for increased adoption of UPI among small retailers. The National Payments Corporation of India said the new rates would “enhance the competitiveness of UPI and encourage more merchants to accept digital payments.”
However, some merchant groups expressed concerns that the phased implementation could create uncertainty for businesses that rely heavily on UPI for daily sales. A spokesperson for the Retailers Association of India said the association would monitor the rollout and provide feedback to the RBI if necessary.
Regulatory context
The MDR framework aligns with the government’s broader digital‑payments strategy, which aims to reduce the share of cash transactions to 5% of total retail payments by 2030. The Finance Ministry has previously highlighted the importance of keeping transaction costs low to promote financial inclusion and to support the growth of the e‑commerce sector.
Under the new scheme, the RBI will publish detailed guidelines on the effective dates for each tier and the calculation methodology for merchants. The RBI has also announced that it will review the rates annually to ensure they remain aligned with market conditions.
Implications for the payment ecosystem
Analysts say the decision could lead to a modest increase in UPI transaction volumes, as lower MDRs reduce the cost barrier for merchants. The RBI’s policy committee had previously warned that high MDRs could discourage merchants from adopting UPI, especially in rural areas where cash usage remains high.
“The new framework is a step toward making digital payments more accessible for all segments of the economy,” said a senior RBI official in a statement. “It also reinforces the government’s commitment to a cash‑less future.”
Next steps
The RBI will issue a detailed circular in the coming weeks outlining the implementation schedule. The Ministry of Finance has asked all stakeholders to review the guidelines and provide feedback by 30 September 2026. The committee will meet again in December to assess the impact of the new rates and make any necessary adjustments.
