UPI Transaction Growth Slows To 23.5% In FY27 Amid Debate Over MDR Charges

Unified Payments Interface (UPI) transaction growth has moderated in the first four months of FY27, according to a report by Moneycontrol citing data from the National Payments Corporation of India (NPCI).

The platform recorded 92 billion transactions between April and July, compared with 74.5 billion transactions during the same period last year, marking a growth of 23.5%.

The growth rate has declined from 33.5% recorded during the April-July period of FY26. For the entire FY26, UPI transaction volumes grew by nearly 30% year-on-year, while growth stood at 41% in FY25. The latest figures indicate that UPI’s volume growth rate has almost halved over the past two years.

MDR debate gains momentum amid slower growth

The slowdown comes at a time when the digital payments ecosystem is debating the possible introduction of a Merchant Discount Rate (MDR) on certain UPI transactions. MDR refers to the fee merchants pay to banks and payment service providers for processing digital payments.

The government had kept MDR at zero for UPI transactions since 2020 to encourage wider adoption of digital payments. However, payment companies and fintech firms have argued that the absence of a revenue model has reduced investments in customer acquisition, merchant expansion and platform growth.

Industry representatives believe MDR could allow fintech companies to offer incentives and expand operations. UPI’s rapid growth in recent years was partly driven by cashback offers and customer rewards, which have reduced as companies focus on profitability.

UPI adoption still has room for expansion

Supporters of the zero-MDR model argue that UPI is a digital public infrastructure similar to Aadhaar and free access will help increase adoption among new users.

A senior banker said UPI penetration remains around 40%, leaving significant scope for expansion. He pointed out that Brazil’s digital payment system has achieved 90% penetration despite having MDR charges.

While transaction volume growth has slowed, transaction value growth has remained relatively stable. The value growth rate increased marginally from 18.5% in FY26 to 20% during the first four months of FY27.

The debate over MDR has gained further attention after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on Aug 6, which could potentially enable the introduction of MDR on UPI transactions.