Merchant Discount Rate (MDR) is the fee a bank or payment provider charges a merchant for processing a digital payment. UPI transactions from savings accounts have carried zero MDR since January 2020.

On August 4, 2026, Finance Minister Nirmala Sitharaman introduced Bill No. 150 of 2026 in the Lok Sabha. It passed on August 6, without debate.

So what is this bill ?

Section 10A of the Payment and Settlement Systems Act, 2007 currently reads: no bank or system provider shall impose any charge on a person using the electronic modes of payment prescribed under Section 269SU of the Income-tax Act. That's the one line that's kept UPI and RuPay free for merchants since January 2020.

The amendment deletes the Section 269SU cross-reference. In its place: "one or more electronic modes of payment as the Central Government may, by notification, specify." No rate. No date. No merchant category. The Bill doesn't levy anything, it just removes a guarantee of not charging any fees for electronic payments. The bill also hands the government a notification power, to be exercised later, in consultation with RBI's Payments Regulatory Board. A follow-up Ministry of Finance release on August 8 adds that "UPI and Services Steering Committee" headed by NPCI, will decide the MDR, if any, not the RBI board alone. That puts NPCI the same body that just cut TPAP fees on RuPay Credit Card on UPI weeks earlier, in the seat that sets the number.

Truly speaking, "zero MDR" was never really zero, it was zero only on payments made from savings bank account. Route the same QR payment through a PPI wallet and the merchant already pays 1.1% above ₹2,000 (0.7% for utilities, education, and telecom). Pay with a RuPay Credit Card on UPI and merchants pay a flat 2% above ₹2,000, split roughly 1.5% to the issuing bank and 0.5% to network and acquirer, nothing below that threshold. NPCI has also reportedly weighed a 1.1-2% band for UPI credit lines, though that one is under consideration rather than confirmed live. While the QR code was free, everything built around it already had a business model.

Mind you, just fourteen months ago, the Finance Ministry called reports of a UPI fee "completely false, baseless, and misleading." So what changed?

The Subsidy math !

The Standing Committee on Finance's 32nd report (March 2026) doesn't just describe zero-MDR as unsustainable. Asked whether UPI, the world's largest real-time payment system, should achieve self-reliance and profitability rather than continue drawing a ₹2,000 crore annual budget line, and whether a tiered model could keep street vendors and small businesses free while charging banks and larger entities, the Department of Financial Services said in its written submission: "the absence of MDR makes the UPI ecosystem financially unsustainable."

The same submission states that incentive support constitutes only 11% of the cost incurred by the industry and 14% of the potential MDR the industry could have collected. The report also flags a second, separate pressure: UPI's own annual transaction growth rate is projected to decline to 25% in FY26, down from 42% in FY25, even as the funding shape stays the same.

Payments Council of India put its own number on the resulting gap on August 7: subsidy running around ₹1,500cr a year against an actual ecosystem cost of roughly ₹10,000cr.

DFS data also states that transactions above ₹2,000 already account for 67% of UPI's total value, and the cost of processing those has always sat with the ecosystem, including banks, without any subsidy at all, since the incentive scheme only ever covered sub-₹2,000 transactions. Whatever MDR structure is finalised, it arrives on a segment the government was never subsidising in the first place.

Card-style MDR is split three ways: the issuing bank earns interchange, the acquiring side (bank or aggregator) takes a cut, and the network switch takes its share. On UPI, RBI's own cost breakdown for a ₹5,000 transaction already shows this split in miniature: issuer 0.10%, acquirer 0.07%, NPCI 0.02%, and the UPI app itself, the layer PhonePe and Google Pay sit on, just 0.06%. Even inside a system built to have no revenue, the app was already the smallest line item.

That's the basis for the consensus view: PhonePe and Google Pay, which together handle roughly 79% of UPI volume as of NPCI's most recent published month, sit outside the acquiring and issuing legs entirely. They're not settlement members. NPCI can't route MDR to them through the rail by default.

But there's already a live precedent for paying TPAPs specifically, not just banks. NPCI's own fee table for RuPay Credit Card on UPI carves out a fee for the payer PSP and the TPAP, currently 6bps for the non-industry category and 3bps for industry, both cut from higher rates as recently as April 2026. The fee splits between the payer PSP and the app, but public reporting doesn't settle whether the published rate is the combined pool or the TPAP's post-split take. Treat the TPAP's realistic share as a range, somewhere between 3-6bps, rather than a single number.

If NPCI follows a similar approach into the savings-account UPI MDR structured at 25-30bps, even the conservative end of that range works out to real money at PhonePe and Google Pay's scale. But it's a policy choice NPCI hasn't made yet, and the fact that it just cut this exact fee weeks before the Bill was introduced is a signal worth sitting with. The precedent that exists points in both directions: TPAPs can be paid, and NPCI has just shown it's willing to pay them less.

Meanwhile, the Parliamentary Finance committee has floated a tiered model that keeps small businesses free while charging "banks and larger entities" directly. DFS's written response, at least in the portion on record, didn't engage with that framing, it restated the cost and incentive gap instead. Whether banks end up as payers into the system or earners from it is still, an open questions?

The open question underneath all of it: would banks, who've absorbed most of the infrastructure cost for six years, want to share a newly priced rail with the apps that built the customer relationship on top of it? And does NPCI have its own reason to prefer routing volume toward BHIM, which it controls directly, over PhonePe or Google Pay, if it's the one writing the fee table? Neither question has an answer yet.

Differing Viewpoints on how to charge

Two different points have emerged in the last eighteen months, and they don't agree with each other.
First is the Payments Council of India's original pitch, made directly to the PMO in March 2025, was 0.3-0.6% MDR on large merchants with turnover above ₹50cr. Second is the one that has been circulating in the weeks around the Bill's introduction is a different number entirely, 5-7bps (0.05-0.07%), with a much lower turnover threshold of ₹1-1.5cr, a design that exempts roughly 90% of merchants outright. (Jefferies has also released a number based on the second calculation). However, the Ministry of Finance release on August 8 states any future MDR will be "nominal" and "far lower than debit or credit card MDRs," applying only to a limited, threshold-based set of transactions. The Government is publicly leaning toward the symbolic end of the range, not the real revenue pool. Whether "nominal" survives post the NPCI-headed Steering Committee's actual notification is the thing to watch.

These two point to different bets on what this fee is for. At 5-7bps, the number is closest to symbolism, it raises roughly what the subsidy already paid out, and functions as a transfer from Budget to merchant with better optics, not new money. At 25-30bps, PCI's original ask, it's a real revenue pool, and it's also the rate large merchants have the clearest incentive to resist or steer around.

My own suggestion is to start with 25-30bps, not 5-7. The lower number keeps everyone underfunded in exactly the way the last four years already proved doesn't work, it just moves who writes the cheque. Banks have carried the heaviest infrastructure build on this rail for six years with zero MDR revenue to show for it. A lower rate that only just offsets the subsidy it replaces gives them nothing to reinvest with. A 25-30bps start, done properly, replaces the subsidy line entirely rather than supplementing it, and gives every layer, bank, acquirer, network, and possibly TPAP, a share big enough to justify the infrastructure spend the Committee itself says is needed.

Two LocalCircles surveys, asking two different questions, give two different numbers. The "UPI @ 10" survey, run in April 2026, found 75% of respondents would stop using UPI entirely if any transaction fee reached them directly, that's the outer bound, a broad hypothetical most users will never actually face, since the proposed design keeps consumers and small merchants untouched.

A second LocalCircles survey, run in early August 2026 as the Bill was being debated, asked a narrower and more realistic question: if large merchants pass MDR on to customers for payments above ₹3,000, 53% said they'd move away from UPI for that band specifically, split 27% to credit cards, 14% to debit cards, 12% to cash or bank transfer.

Expect merchants to test the ₹2,000 boundary with tactics like split billing, "cash preferred above ₹2,000" signage, & informal steering at the point of sale.

The more interesting story is what's already happening on the supply side, independent of consumer sentiment. RBI repriced the ATM channel upward in May 2025, interchange from ₹17 to ₹19, customer cap from ₹21 to ₹23, and handed interchange-setting authority to the network itself. The average ATM withdrawal, ₹5,835 in 2025, sits well above the ₹2,000 MDR floor, meaning cash is a live, economically rational alternative for merchants and consumers at exactly the ticket size this fee targets.

Debit cards tell a related story from a different angle. RBI's Payments System Report shows debit card transaction volumes collapsing from 408.7 crore in 2021 to 133.6 crore in 2025, value down from ₹7.4 lakh crore to ₹4.5 lakh crore, over the same stretch UPI went from a standing start to 85% of digital payment volume. The product didn't fail, it lost a price war against zero, the one competitor no payment instrument survives. Reprice UPI even modestly and that handicap narrows.

None of this reverses digitalisation. Notes in circulation kept growing through 2025 and 2026 even as UPI became the default rail, ₹36.86 lakh crore to ₹41.23 lakh crore, proof that India digitised its payments without giving up its cash. The question this Bill actually tests isn't whether UPI stays dominant, it will. It's whether the small, boring instruments everyone stopped covering, ATMs, debit cards, cash logistics, quietly claw back share at the margin the moment their zero-cost competitor stops being zero-cost.

The market had already priced this before the ink dried. Pine Labs closed at ₹152.2 on August 4, the day the Bill was introduced, up from ₹139 the previous close, roughly +9.5%. Paytm's same-day move is harder to pin exactly, a block deal that day printed a weighted average of ₹1,367.8, consistent with a reported close near ₹1,376, up about 2.6%. Both are real, both are options priced on a strike that hasn't been set yet, no rate, no date, no confirmed merchant category.

The layer that actually benefits on plumbing alone is the one that didn't rally as hard: acquiring franchises and banks, who've run UPI as a loss-making obligation stapled to their deposit book for six years with zero MDR revenue to show for it. Paying banks to care about uptime again, after years of outage complaints and under-investment the Standing Committee itself flagged, is the one straightforwardly good outcome in this Bill, regardless of where the rate lands.

Visa and Mastercard sit outside this notification entirely, it's RuPay and UPI-specific, but every basis point UPI starts charging narrows their relative pricing disadvantage in the Indian market for the first time since 2020.

The genuinely strange outcome sits in the drafting, not the market reaction. If the eventual notification keeps RuPay debit exempt while pricing UPI above ₹2,000, RuPay debit becomes, by accident, the cheapest way for a large merchant to accept a big-ticket payment in India. Nobody appears to have modelled this deliberately. It's a function of two separate policy tracks, UPI's zero-MDR guarantee being removed and RuPay debit's protection potentially staying intact, that were never designed to interact this way.

Keep the stock reaction and the fundamentals in separate columns. What rallied is a claim on future MDR revenue at an unset rate, landing mostly at a layer, banks and acquirers, that the rallying stocks don't fully belong to. TPAP economics remain an open scenario, not a booked outcome.

Bill No. 150 answers one question: can banks and payment providers legally charge for UPI. It leaves the harder one completely open, what is any single layer of this stack actually worth once the subsidy that funded six years of "free" is gone. The rate matters less than the discipline of finding out. A 25-30bps floor forces every stakeholder, bank, acquirer, TPAP, merchant, to prove the number, instead of inheriting one from a Budget line that never scaled with the rail it was meant to sustain.

Watch three things once the gazette notification lands: whether TPAPs get an explicit fee-table line the way RuPay Credit Card on UPI does, whether large-merchant volume starts bunching just under ₹2,000, and whether RuPay debit's exemption survives the same notification that ends UPI's. Each answer will tell you more about who actually wins this than anything priced into a stock this week.