RuPay credit cards linked to UPI have captured 16-18% market share by 2026, embedding credit into daily transactions. However, a government bill introduced in August 2026 proposes amending the Payment and Settlement Systems Act to potentially allow the reintroduction of Merchant Discount Rate (MDR) on select transactions. This development could shift the profitability models for banks and payment service providers in the digital ecosystem.
The integration of RuPay credit cards with the Unified Payments Interface (UPI) has rapidly transformed the Indian digital payments landscape. Since the feature's rollout in 2022, adoption has surged, with RuPay’s credit card market share climbing to approximately 16-18% by August 2026, compared to just 3% four years ago. This growth reflects the shift in consumer behavior, as users increasingly leverage their credit lines for everyday, low-value purchases at kirana stores and local shops, which were previously dominated by debit-based UPI payments.
While the integration offers consumers benefits like interest-free periods of up to 50 days and reward points on small transactions, the underlying business model for payment service providers has faced challenges. Financial institutions and fintech companies have struggled to balance the high processing costs of these high-frequency, low-value transactions against a zero-fee environment.
Regulatory Shift and Profitability
The most significant development for the sector is the government's recent move to modify the regulatory framework. On August 4, 2026, the government introduced the Taxation and Other Laws (Amendment) Bill, 2026, which proposes an amendment to Section 10A of the Payment and Settlement Systems (PSS) Act. This legislative change seeks to provide the government with the flexibility to reintroduce the Merchant Discount Rate (MDR) on select UPI and RuPay credit transactions. MDR is the fee that merchants pay for processing credit card payments.
For investors, this is a crucial signal. The zero-MDR policy has been a pillar of UPI’s mass adoption but has limited the ability of banks and payment platforms to monetize the service. The proposed amendment targets large merchants and high-value transactions, likely those exceeding ₹2,000, while keeping smaller businesses and typical consumer transactions exempt. If implemented, this could provide a pathway for payment providers to improve margins on credit-based UPI transactions, which currently require significant infrastructure spending for minimal fee income.
Risks and Monitorables
While the proposal aims to make the digital payment ecosystem more sustainable, it introduces uncertainty. The primary risk is how large merchants might react to the potential return of processing fees and whether this impacts transaction volumes. Additionally, the final structure of the MDR and the specific merchant categories affected remain to be seen.
Investors may track the progress of this amendment bill, as it will determine the future fee structure for digital payments. The key monitorable will be how payment service providers adjust their pricing and whether the introduction of fees for larger merchants alters the growth trajectory of credit card-linked UPI transactions. Maintaining financial discipline remains vital for consumers, as the ease of credit usage on daily purchases can lead to accumulation of debt if not monitored regularly.