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PhonePe says UPI will remain free as MDR bill raises merchant-fee questions
Our read
UPI likely stays free for consumers, but large retailers may face a new tiered or indirect merchant-cost model as payment firms seek monetization.
For operators
Keep UPI positioned as free for consumers, while preparing larger-merchant pricing and acceptance strategies for a potential shift to negotiated MDR.
Watch
Final bill language defining MDR authority, merchant-size thresholds, and whether UPI-specific exemptions apply.
The report,
PhonePe CEO Sameer Nigam said UPI will remain free for Indian consumers despite legislation enabling potential MDR charges. Industry representatives said small merchants remain exempt, while any merchant fees would be commercial arrangements with payment providers.
Reported figures
From the report. Source details below
| Taxation and Other Laws (Amendment) Bill, | 2026 |
|---|
Also in the report
- Google Pay and PhonePe process over 80% of UPI transactions
Other figures
- UPI launched in 2016
Why it matters to operators
Potential MDR reform could make payment-provider partnerships and merchant-acquiring assets more valuable, especially in enterprise merchant segments.
What to watch next
- Statements from RBI, NPCI, and the finance ministry on zero-MDR continuation and provider compensation.
- Commercial fee announcements or revised contracts from PhonePe, Google Pay, Paytm, banks, and payment aggregators.
- Growth in enterprise UPI service fees, especially for instant settlement, APIs, fraud tools, and reconciliation.
- Merchant associations lobbying over acceptance costs or seeking surcharging permissions.
- Changes in UPI transaction mix toward credit-on-UPI, which may create a separate monetization path.
Likely next moves
Our read of what comes next — analysis, not reported by the source.
- Large retailers should model payment-cost exposure by UPI transaction value, ticket size, and provider concentration under 0-30 bps fee scenarios.
- Renegotiate acquiring and payment-provider contracts to cap ancillary fees, preserve routing flexibility, and secure volume-based rebates.
- Expand multi-provider UPI orchestration and monitor payment-method steering options without undermining consumer conversion.
- Small merchants should prepare documentation of turnover and transaction volumes to qualify for any exemption threshold.
- Payment providers will prioritize enterprise merchant bundles, settlement services, merchant credit, and reconciliation products over direct consumer charges.
The counter-case
The case against this reading — not reported by the source.
The headline may understate the practical risk: UPI can remain free to consumers while MDR or related charges are passed to merchants, potentially reducing acceptance among price-sensitive small businesses or raising retail prices indirectly. Even if small merchants are initially exempt, threshold design, compliance burdens, and future policy changes could expand the charge base. Commercially negotiated fees for larger merchants could also favor dominant payment providers and weaken UPI’s low-cost, interoperable positioning.