Industry experts on Thursday, 20 August 2026 called on policymakers to retain zero Merchant Discount Rate (MDR) on UPI transactions for small merchants and low-value payments, warning that any user fee could undermine the financial inclusion gains that have made India's digital payments ecosystem a global benchmark. The appeal came through a report by Policy Watch India Foundation, which aggregated expert views on the evolving MDR debate.

Why Zero MDR Has Been Central to UPI's Rise

Experts argued that the removal of transaction charges was not merely a subsidy — it was a structural policy choice that democratised digital payments across India's vast informal economy. Dharmender Jhamb, Partner at Grant Thornton Bharat, said the policy had lowered adoption barriers and cemented UPI's standing as globally admired digital public infrastructure.

'Zero MDR has been a defining policy intervention in democratising digital payments in India. It has lowered barriers to adoption, accelerated merchant acceptance, and reinforced UPI's position as a globally admired digital public infrastructure,' Jhamb said. He added that the future challenge is not to choose between inclusion and sustainability, but to achieve both.

Impact on Small Businesses and Low-Income Families

Dharmendra Kumar, Founding Secretary of Janpahal, described UPI as an important public good for small businesses and low-income families, particularly those operating in the informal economy. 'UPI has supported small businesses including street vendors increase their income and any user fee may impact the poor adversely,' Kumar said.

Bikash Narayan Mishra, Former Senior Advisor at the Indian Banks' Association, noted that zero MDR had done more than enable payments — it had opened pathways to digital bookkeeping, formal financial services, and credit access for merchants who previously operated entirely outside the formal system. He stressed that any change to this framework must be evaluated on its impact on merchant behaviour, financial inclusion, and the broader digital economy, not merely on cost grounds.

The Policy Backdrop: PSS Act Amendment

The discussion is unfolding against a significant legislative shift. Parliament's recent amendment to the Payment and Settlement Systems Act, 2007 now enables the government to notify electronic payment modes and transactions on which charges may be levied — a provision that has sharpened industry anxiety about the future of zero MDR. Experts stressed that any future MDR framework must balance ecosystem sustainability with affordability and continued merchant adoption.

Mishra added that as India's digital payments journey expands into Tier-3 and Tier-4 cities and rural India, affordability and trust will remain critical to sustaining adoption momentum.

UPI's Record-Breaking Numbers Raise the Stakes

The debate comes at a moment of peak UPI momentum. Data from the National Payments Corporation of India (NPCI) showed that UPI clocked its highest-ever monthly transaction volume in July 2026 at 23.66 billion transactions worth ₹29.88 lakh crore. Transaction volume rose 22% year-on-year and 4.1% from June, while transaction value grew 19% year-on-year. UPI processed an average of ₹96,383 crore worth of payments every day during the month.

With these numbers, the stakes of any MDR policy shift are higher than ever — and the experts' consensus is that protecting small merchants from transaction costs is non-negotiable if India's digital inclusion story is to hold.