India Must Retain Zero MDR For Small Merchants To Protect UPI’s Inclusion Gains: Industry Experts

New Delhi, August 20, 2026: India must retain zero Merchant Discount Rate on UPI transactions for small merchants and low-value payments, as affordability has been central to UPI’s rapid adoption and resultant financial inclusion, industry experts said on Thursday.

The report from Policy Watch India Foundation cited experts warning that a user fee could adversely affect poor and informal economy participants, adding that affordability has also been central to UPI's emergence as a key component of India's digital public infrastructure.

“Zero MDR has been a defining policy intervention in democratising digital payments in India. It has lowered barriers to adoption, accelerated merchant acceptance, and reinforced UPI’s position as a globally admired digital public infrastructure,” said Dharmender Jhamb, Partner, Grant Thornton Bharat.

Jhamb said the future challenge is not to choose between inclusion and sustainability, but to achieve both.

Balancing Sustainability And Affordability

The discussion comes amid the evolving policy framework for digital payments following Parliament's amendment to the Payment and Settlement Systems Act, 2007, which enables the government to notify electronic payment modes and transactions on which charges may be levied.

The experts stressed that any future MDR framework should balance the sustainability of the payments ecosystem with affordability and continued merchant adoption.

Dharmendra Kumar, Founding Secretary, Janpahal, said UPI had emerged as an important public good for small businesses and low-income families, particularly those operating in the informal economy.

“UPI has supported small businesses including street vendors increase their income and any user fee may impact the poor adversely,” Kumar said.

Zero MDR Supports Digital Adoption

Bikash Narayan Mishra, Former Senior Advisor, Indian Banks’ Association, said zero MDR had helped make digital payments accessible to small merchants and had also supported wider access to formal financial services and credit.

“It encouraged businesses to adopt digital payment acceptance and, over time, enabled wider access to digital bookkeeping, formal financial services and credit,” Mishra said.

Change to such a framework must be evaluated on its impact on merchant behaviour, financial inclusion and the broader digital economy rather than in terms of the cost.

As India's digital payments journey expands into Tier-3 and Tier-4 cities and rural India, affordability and trust will remain critical, he added.

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UPI Records Strong Growth

National Payments Corporation of India (NPCI) data showed that UPI clocked its highest-ever monthly transaction volume in July 2026 at 23.66 billion transactions worth Rs 29.88 lakh crore.

Transaction volume rose 22 per cent year-on-year and 4.1 per cent from June, while transaction value increased 19 per cent year-on-year. UPI processed an average of Rs 96,383 crore worth of payments every day during the month.

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