NITI Aayog has supported transitioning UPI to a self-financing model for business transactions, following the 2026 legal amendment that removed the blanket zero-MDR mandate. While individual consumer and peer-to-peer transfers will remain free, the potential introduction of nominal charges for merchants may improve revenue sustainability for India's digital payments infrastructure.
NITI Aayog Vice Chairperson Ashok Lahiri has advocated for a sustainable financial model for the Unified Payments Interface (UPI), suggesting that the system should move away from the blanket zero-Merchant Discount Rate (MDR) structure. This shift, he noted, is essential to ensure the long-term viability of the digital payments ecosystem as infrastructure and operating costs rise.
This development follows the passing of the Taxation and Other Laws (Amendment) Bill, 2026, in August, which provided the legal enabling framework for potential charges on specific, high-value merchant transactions. Previously, a rigid zero-MDR mandate had restricted payment providers from earning direct transaction fees, often limiting their ability to invest in advanced fraud prevention, customer support, and system reliability.
Protecting Consumers and Clarifying Scope
It is important for investors and users to note that the government has maintained a consistent stance that UPI will remain free for all individual consumers and person-to-person (P2P) transfers. The discussion regarding fees is restricted to business-to-consumer or business-to-business transactions. The ultimate goal, according to official signals, is to balance the need for high-quality, secure digital infrastructure with the affordability that drove UPI’s massive adoption.
Potential Impact on the Fintech Ecosystem
For payment companies and fintech firms, this policy shift represents a potential change in revenue generation. Under the zero-MDR regime, many service providers relied on cross-selling other financial products to offset the cost of processing payments. Moving toward a modest, sustainable charging model could diversify revenue streams for these firms and reduce the heavy reliance on non-payment products to maintain profitability.
Beyond just processing fees, officials are looking at the value of transactional data. With user permission, digital payment history can serve as a powerful tool for credit assessment. By analysing income patterns and cash flows, lenders could better identify creditworthy small businesses that currently lack formal documentation, potentially expanding the reach of formal credit in the economy.
Risks and Future Monitorables
While the regulatory framework is now in place, several uncertainties remain. The government and the National Payments Corporation of India (NPCI) have not yet announced any specific MDR rates, transaction thresholds, or implementation timelines. The responsibility for determining these structures rests with an NPCI-led 'UPI and Services Steering Committee.'
Investors may monitor the following factors in the coming months:
- Thresholds and Rates: The specific transaction values or merchant categories that will attract fees will determine the actual revenue impact for payment processors.
- Implementation Pace: The speed at which the steering committee finalises the structure will dictate when companies can begin expecting new revenue streams.
- Merchant Adoption: Business resistance to new costs is a known variable. If merchant uptake of UPI remains stable despite nominal fees, it would be a positive indicator of the system's value proposition.
- System Stability: The market will watch to see if the new revenue generated is effectively reinvested into improving uptime and cybersecurity, which are critical for maintaining user trust.