India Reintroduces Merchant Fees on Select Digital Payments

India is set to bring back merchant fees on digital payments through its Unified Payments Interface (UPI), marking an end to six years of zero-cost transactions. The move comes as a response to lawmakers labeling the current model unsustainable, with government subsidies covering only around 11-14% of industry infrastructure costs.

The proposed fees, which would apply to transactions exceeding ₹2,000 made by larger merchants with annual turnovers of roughly ₹1-1.5 crore, are designed to be surgical rather than sweeping. MDR rates would land somewhere between 5 and 7 basis points, or less than 0.5%, for select UPI transactions.

The bill gives the government flexibility to determine which payment methods and what rates can incur fees without imposing charges directly on consumers. This selective application matters too, as it avoids the political backlash that killed MDR in the first place and creates a tiered system where payment companies can focus innovation and premium services on large-merchant segments.

The Indian government has earmarked a ₹2,000 crore budget for FY27 subsidies, signaling it plans to continue supporting the ecosystem even as private revenue returns. However, there's a risk of scope creep, with the bill giving the government broad discretion to determine applicable payment modes and fee structures.