Over the past decade, the Unified Payments Interface has fundamentally redefined public trust in India’s financial ecosystem. It has shown that population-scale digital public infrastructure can be fast, secure, interoperable and deeply reliable. Its success is visible not only in adoption numbers, but in the behavioural shift it has created. From small merchants and street vendors to large retailers and digital platforms, UPI has made cashless payments part of everyday economic life.
This transformation has been extraordinary. Annual UPI transaction volumes have grown from just 2 crore transactions in FY 2016-17 to over 24,162 crore transactions in FY 2025-26, marking a more than 12,000-fold increase. Few public digital systems anywhere in the world have scaled at this pace while retaining such high levels of public confidence. UPI has demonstrated that citizens will adopt digital systems at scale when the technology is simple, dependable and trusted.
However, sustaining this trust now requires moving beyond the success of adoption to the economics of endurance. A digital payments ecosystem operating at this scale cannot rely indefinitely on innovation alone. It requires continuous investment in cybersecurity, fraud prevention, server capacity, grievance redressal, dispute resolution and transaction reliability. If these costs are not adequately financed, the risks are not merely commercial. They can translate into lower success rates, higher vulnerability to fraud and, ultimately, erosion of the very public trust that UPI has so carefully built.
This is the larger policy context behind the Ministry of Finance’s recent move to amend Section 10A of the Payment and Settlement Systems Act, 2007. By enabling banks and system providers to levy a Merchant Discount Rate on UPI and RuPay transactions for large merchants, specifically those with annual turnover exceeding Rs 50 crore, the government is signalling a shift from pure adoption-led policy to a more mature model of long-term ecosystem sustainability.
The zero-MDR regime, introduced in January 2020, served an important purpose. It helped accelerate digital payment adoption, encouraged merchants to accept UPI, and removed friction for consumers during a critical scale-building phase. In that sense, it was one of the most successful market-expansion strategies deployed through public policy. It helped habituate millions of Indians to digital payments and enabled UPI to become a default payment layer for the economy.
But public goods also carry private costs. Payment infrastructure may appear invisible to the user, but it is far from costless. Banks, payment service providers, technology platforms and system operators must continuously invest in resilience, cybersecurity, compliance, fraud monitoring and operational capacity. The Parliamentary Standing Committee on Finance, in its March 2026 report, rightly underlined that the absence of MDR had made the ecosystem financially unsustainable.
The policy question, therefore, is not whether UPI should remain affordable and inclusive. The more important question is how the cost of maintaining this infrastructure should be fairly allocated. Continuing to place the burden entirely on the public exchequer is not a sustainable long-term solution, especially when the largest commercial beneficiaries of UPI are high-turnover enterprises, e-commerce platforms and large retail chains that gain materially from lower cash-handling costs, instant settlements and higher transaction efficiency.
Seen in this light, a calibrated MDR for large merchants is an attempt to protect the digital infrastructure. By linking the proposed framework to Section 269SU of the Income Tax Act, which applies to businesses with turnover above Rs 50 crore, policymakers have drawn an important distinction between mass inclusion and commercial cost recovery. Person-to-person transfers and everyday usage continue to remain free. Micro, small and medium enterprises also remain shielded from additional payment acceptance costs.
This distinction is critical. A street vendor, a kirana store or a small service provider should not be penalised for digitising. Their participation is central to India’s financial inclusion journey. But a large merchant or platform deriving significant value from seamless, high-volume digital payments can reasonably be expected to contribute a modest infrastructure recovery fee. It is a contribution to the reliability, security and continuity of the public digital rails on which modern commerce increasingly depends.
Of course, the MDR framework must be designed with care. Critics may argue that merchants could pass on these costs to consumers, discourage UPI usage or nudge customers toward alternative payment modes. These concerns are valid and must be anticipated. That is why the next stage of policymaking will be crucial. The Reserve Bank of India and the Finance Ministry must ensure that any MDR introduced for large merchants is modest, transparent and strictly capped. It should function as a cost-recovery mechanism, not as an avenue for rent-seeking.
Equally important is the question of revenue distribution. The MDR framework should strengthen the broader payments ecosystem, rather than disproportionately benefit a narrow set of intermediaries. The objective should be to support investment in transaction reliability, fraud prevention, customer protection and system resilience. If designed well, this can create a healthier and more accountable ecosystem for banks, fintechs, payment service providers and consumers alike.
This is also a timely moment to recognise that UPI has entered a new phase in its lifecycle. During the early years, a zero-cost structure helped create network effects. It encouraged both users and merchants to adopt the platform rapidly. But once a network reaches population-scale maturity, the economics of maintenance become as important as the economics of adoption. Mature infrastructure cannot be sustained only through subsidies or goodwill. It requires predictable, recurring and fairly distributed sources of investment.
The global implications are equally important. India is actively positioning its digital public infrastructure, including India Stack and UPI, as a model for the Global South. Many developing countries in Africa, Latin America and Southeast Asia are studying India’s experience as they seek to build inclusive, low-cost and interoperable digital systems. For them, the credibility of India’s model will depend on its scale and financial viability.
The proposed amendment should therefore be understood as a reinforcement of DPI principles. UPI was built on accessibility, reliability and trust. To preserve these principles at the next level of scale, the ecosystem must be adequately funded and resilient. Inclusion cannot rest on fragile infrastructure. Trust cannot be maintained without continuous investment.
The task before policymakers now is to design the framework with precision. MDR caps must be clearly defined. Consumer and small-merchant protections must be non-negotiable. Revenue use should be aligned with system resilience and security. Regulatory oversight must ensure that the fee does not become excessive or opaque. If these safeguards are built in, the proposed framework can strike the right balance between affordability and sustainability.
UPI’s first chapter was about proving that India could build and scale world-class digital public infrastructure. Its next chapter must be about proving that such infrastructure can endure. By moving towards a calibrated commercial sustainability model, India is strengthening the UPI model. The digital trust built over the past decade now needs to be protected, financed and made ready for the next phase of domestic and global scale.
The writers are public policy professionals at MSL.
The opinions expressed in this article are those of the author/s and do not purport to reflect the opinions or views of THE WEEK.
