UPI MDR Move Important for Long-Term Growth and Sustainability, Says PhonePe CEO Sameer Nigam
Bengaluru, September 16, 2026: PhonePe founder and CEO Sameer Nigam has said that the government’s decision to introduce a 0.4 per cent Merchant Discount Rate (MDR) on certain merchant-related UPI transactions above ₹2,000 is important for the long-term growth and sustainability of India’s digital payments ecosystem.
According to Nigam, India currently processes around 70–80 crore UPI transactions every day, making it essential for the payments industry to have a sustainable revenue model that can support continued investment and expansion.
Around 96% UPI transactions to remain free
Nigam said that approximately 96 per cent of UPI transactions will continue to remain free, as most transactions are below the ₹2,000 threshold.
The 0.4 per cent MDR will apply to eligible merchant transactions above ₹2,000. He said the revenue generated through the framework can help payment companies recover operational costs and reinvest in technology, innovation and expansion.
For the past six years, UPI transactions had remained MDR-free, with payment companies absorbing significant operational costs, Nigam said.
Focus on expanding UPI to smaller cities
Nigam said the additional revenue could allow payment companies and third-party application providers (TPAPs) to invest further in expanding digital payments to smaller towns and cities.
He also said the revenue could support investments in marketing, innovation and new UPI-based use cases.
According to him, the scale of India’s UPI ecosystem has changed significantly since the MDR waiver was introduced in 2020 during the COVID-19 period.
UPI payments for consumers remain free
Nigam said consumers will continue to benefit from free UPI payments.
The government has clarified that the new framework does not affect person-to-person (P2P) UPI transactions. Such transactions will continue to remain free regardless of the amount transferred.
The government has also stated that MDR is not a tax or a charge collected by the government or NPCI. Instead, it is distributed among participants in the payments ecosystem, including banks and payment application providers.
MDR lower than credit card rates
Nigam pointed out that many merchants already pay MDR on RuPay credit cards, Visa and Mastercard transactions.
He said credit card MDR rates typically range between 1.5 per cent and 2.5 per cent, while the applicable UPI MDR is 0.4 per cent for the specified transactions.
He also highlighted the potential benefits for merchants, including easier digital payments, transaction records and a digital financial footprint that could help businesses access formal credit and loans.
Government says framework aims at UPI sustainability
The government has said the new framework was introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee.
It has maintained that the framework is aimed at ensuring the long-term sustainability of the UPI ecosystem while protecting individuals and small merchants from additional charges.
With UPI now handling hundreds of millions of transactions daily, the debate over how to maintain the financial sustainability of the country’s digital payments infrastructure is expected to remain an important issue for the fintech sector.
