On 10 August 2026 India’s Parliament passed enabling legislation that could allow limited merchant fees on UPI transactions by large businesses while confirming that consumers and small merchants will continue to pay nothing. The world’s largest real-time payment system, which handled 241 billion transactions last year, now has a legal path toward long-term sustainability without altering the free experience for everyday users.
Key Takeaways by Planet Today
- Users Fully Protected: Everyday UPI transfers and small merchant payments stay free of charge, preserving the system’s role in financial inclusion for hundreds of millions.
- Sustainability Shift Underway: The new enabling law allows future nominal Merchant Discount Rate only on limited high-value transactions by large merchants, creating room for banks and fintechs to fund infrastructure, cybersecurity and innovation after years of zero-MDR costs.
- Global Scale Meets Real Costs: With 241 billion transactions worth roughly $3.3 trillion in the last fiscal year and operations now spanning more than a dozen countries, the move addresses long-term resilience without disrupting the free experience for ordinary Indians.
- Industry Support Emerging: Leading payment firms have backed a calibrated model that shields small vendors while giving the ecosystem a viable economic foundation.
- Policy Still Evolving: No MDR rates or thresholds have been finalised; the NPCI-led committee will decide the details after the legislation takes effect.
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“Will consumer pay any UPI charge — No. UPI has remained free for consumers since its launch and every Indian will continue to make this instant digital without paying any transaction charge,” Sitharaman told the Rajya Sabha. She repeated that the provision is purely enabling and imposes neither tax nor transaction charge on users.
The amendment to Section 10A of the Payment and Settlement Systems Act gives the government authority to decide which electronic payment modes must remain free. Once notified, the UPI and Services Steering Committee headed by the National Payments Corporation of India will examine whether a Merchant Discount Rate should apply, and if so, at what level and to which category of merchants.
How Big Has UPI Become?
UPI now serves nearly 555 million users and ranks as the world’s largest real-time payment system by volume, according to the International Monetary Fund. In the last fiscal year it processed 241 billion payments valued at about $3.3 trillion. July 2026 alone saw 23.66 billion transactions worth ₹29.9 lakh crore. Daily averages hover around 660 million payments.
The system operates in at least a dozen countries and has agreements covering more than twenty others. From street vendors to e-commerce giants, UPI has become the default way millions of Indians move money. That scale, however, has also created pressure. Banks and fintechs have invested heavily in infrastructure, fraud prevention and cybersecurity with almost no direct revenue from the payments themselves.
“It will support the banks and fintech to invest more on infrastructure, innovation and security,” Sitharaman said.
Industry voices have echoed the same point. PhonePe CEO Sameer Nigam stated flatly that consumers will not be charged. Razorpay CEO Harshil Mathur argued that every major digital infrastructure needs a sustainable model so continuous investment in reliability and security remains possible. Small merchants and person-to-person transfers, both sides insist, must stay protected.
What the New Rules Actually Allow
Under the framework now in place:
- All person-to-person transfers remain free.
- Consumers never pay a transaction charge.
- The vast majority of merchant transactions stay free.
- Any future MDR would apply only to a limited set of large-merchant transactions above a yet-to-be-decided threshold and at a nominal rate far below typical debit or credit-card MDRs.
Officials have repeatedly stressed that vegetable vendors, tea stalls and other small businesses will not face charges. The focus, if any fee is introduced, will be on high-value payments by large platforms in sectors such as e-commerce, aviation or organised retail.
Government subsidies of roughly $1 billion between 2021 and 2025 helped accelerate adoption after the 2016 currency reform. Those incentives, combined with the zero-MDR policy, turned UPI into a national utility. The new legislation simply creates the legal space to move from pure subsidy to a more self-sustaining model once the system has reached maturity.
Why the Timing Matters
Transaction growth, while still strong, has slowed from earlier triple-digit rates. Banks report annual operating costs in the thousands of crores just to keep the rails running. Cyber threats and the need for continuous upgrades add further pressure. Without a revenue path for larger merchants, the risk of under-investment grows.
Analysts at Jefferies have estimated that a modest fee on higher-value transactions could generate ₹50–100 billion in annual industry revenue by fiscal 2028. That money would flow into the same infrastructure that currently carries more transactions than Visa or Mastercard globally.
The move also fits India’s broader digital diplomacy. UPI’s overseas footprint is expanding as partner countries seek real-time payment technology. A system that can fund its own security and innovation is more likely to remain a reliable export of Indian soft power. In a multipolar economic landscape, durable digital public infrastructure has become a strategic asset. Related analysis of shifting global power balances appears in coverage such as Why Trump’s China trip signifies the end of American primacy.
What Happens Next
No rate or threshold has been set. The NPCI-led committee will examine the data and consult stakeholders before any recommendation reaches the government for notification. Until that process concludes, nothing changes for users or small merchants.
For the moment, the practical effect is reassurance rather than disruption. The free experience that turned UPI into everyday infrastructure remains intact. At the same time, the legal door is now open for a carefully calibrated contribution from those large businesses that benefit most from the system’s reliability and reach.
India has shown that a public digital payment rail can achieve massive scale while staying free for ordinary people. The latest parliamentary step simply asks whether that same rail can also generate the resources needed to stay secure and innovative for the next decade. The answer, when it comes, will be shaped by data, consultation and the clear political commitment that consumers will never foot the bill.
Disclaimer for fact-checkers: This article draws primarily from official statements by the Ministry of Finance, Finance Minister Nirmala Sitharaman’s remarks in Parliament on 10 August 2026, NPCI transaction data, and contemporaneous reporting by major Indian financial media. Policy details on any future Merchant Discount Rate remain subject to further notification and committee recommendations; readers should consult primary government sources for the most current status.