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, a technical report by professors at IIT Bombay has warned, calling for changes to the proposed model.
The report estimates that the Merchant Discount Rate (MDR) framework could generate around ₹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 ₹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 ₹2,000 can attract an MDR of up to 0.40% capped at ₹300 per transaction. Person-to-person transfers and merchant payments up to ₹2,000 remain free.
Using August 2026 data, the report estimates that merchant UPI transactions were worth nearly ₹9 lakh crore, of which around ₹6 lakh crore involved payments above ₹2,000. Assuming an effective average MDR of 0.25 %, it projects monthly revenue of ₹1,500 crore..
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 ₹4.84 lakh crore from current and savings account deposits in FY26. It argues that banks should contribute around 3% of this income, or about ₹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 ₹50 crore, capping percentage-based MDR at ₹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
