RBI Governor Flags Cost of UPI as MDR Debate Grows

RBI Governor Sanjay Malhotra said the cost of running India’s digital payments infrastructure cannot be ignored indefinitely, even as he called it premature to comment on any final move to levy MDR on UPI transactions.
Reserve Bank of India Governor Sanjay Malhotra on Wednesday said “someone has to pay the cost” of maintaining India’s digital payments infrastructure, adding fresh weight to the debate over whether merchant discount rate, or MDR, could return for some UPI transactions.

भारतीय मार्केटमध्ये इन्व्हेस्ट करा आणि 5paisa सह भविष्यातील क्षमता अनलॉक करा!

आत्ताच अकाउंट उघडा

The remarks came during the post-monetary policy press conference, where Malhotra was asked about the proposal to levy MDR on UPI payments above ₹2,000. He said it was “very premature” to comment because the government is still carrying out the amendment process, but added that the cost of maintaining UPI payments cannot be ignored indefinitely.

“It is very premature to talk right now. The government is still carrying out the amendment. The costs have to be paid by someone. We all want that this public infrastructure should continue to strengthen. Let's wait and watch for further developments on this,” Malhotra said.

He also said the central bank’s focus remains on keeping digital payments accessible, affordable, safe and sustainable. At the same time, he acknowledged that the economics of the system cannot be separated from the policy discussion. Please keep in mind that ultimately it is the consumer in some way or the other who's paying.

So, it may not be the same consumer. It may be the general economy, and you don't get to see it directly,” he said.

Government amendment has reopened the MDR debate

Malhotra’s comments come shortly after the Union government moved to amend the Payment and Settlement Systems Act, opening the way for a possible return of MDR on select UPI merchant transactions after nearly six years of a zero-MDR regime.

The proposal under discussion would apply MDR only to certain business transactions, not person-to-person transfers. According to the source report, the government is considering MDR of 0.25% to 0.4% on UPI payments above ₹2,000 made to businesses, while keeping person-to-person transfers free. One proposal would apply the levy only to large merchants.

That distinction is significant because UPI’s consumer-facing model has grown around the idea of frictionless, low-cost digital payments. Any move to reintroduce MDR, even selectively, would have implications for merchants, payment service providers, banks and large digital platforms.

Why the issue matters for banks and payment firms

Industry executives have argued for some time that the zero-MDR structure has left banks and payment companies without a viable revenue stream, even as UPI volumes have expanded and the cost of maintaining the infrastructure has risen. Business Standard cited Reuters in noting that the gap between usage growth and revenue recovery has become a core industry concern.

The governor did not endorse a final charging structure. But his remarks signalled that the cost side of the discussion is now being stated more openly by the central bank.

That matters because the public debate on UPI pricing has often centred on whether users should continue to see UPI as “free”. The broader question, which the governor raised directly, is who bears the cost if the end-user does not pay explicitly.

RBI stops short of backing a final model

Malhotra’s comments were careful on one point: the RBI is not presenting a decision.
He said it is still too early to draw conclusions while the government’s amendment process is underway. That means there is no final public framework yet on rates, merchant categories or implementation timing.
The policy signal, however, is harder to ignore. The central bank is making the case that digital public infrastructure needs a sustainable cost structure, even if the eventual burden is not visible to the end-user in a direct way.

पुढे काय येते

The next stage is likely to be shaped by the government’s legislative and policy process rather than by the RBI alone. If the amendment is carried through, the government will still need to decide whether to notify MDR, where to apply it, and how narrowly to define the affected transactions.

For now, the governor’s message is narrower than a policy announcement but stronger than a passing remark. UPI remains operationally free for users in the way they know it today. But the zero-cost model is now under sharper scrutiny, and the question of who funds the system is moving closer to the centre of the policy discussion.

That makes Wednesday’s comments one of the clearest signals yet that the UPI MDR debate is no longer only an industry complaint. It is now part of the formal policy conversation.