MDR on UPI designed to benefit US service providers, say fintech experts

The MDR is not a tax or a cess, the finance ministry has claimed. It is just a small fee to keep the UPI (Unified Payments Interface) that allows seamless digital payments going. The ministry also claims that consumers will not feel the pinch because the merchants will pay it and the payment will go to banks and service providers who facilitate the transactions. This payment is necessary to maintain and sustain the UPI infrastructure, the ministry has claimed. Several experts do not seem to be convinced.

India’s UPI digital payments crossed Rs 314 lakh crore in FY2025‑26, making it the backbone of the country’s cashless economy. Walmart’s PhonePe leads with about 46.2 per cent market share, while Google Pay follows at 32.7 p.c., together accounting for nearly 80 per cent of UPI transactions. Only 4 per cent of the total number of transactions exceed Rs 2,000, but in terms of value, almost 70 per cent of the payments is made up of payments over Rs 2,000 and contribute around two-thirds of UPI’s transaction value. This is what the MDR targets.

Trade and finance expert Ajay Srivastava took to social media to point out that the Finance Ministry’s notification dated 14 September 2026 changes the law and may allow the government to broaden the charges to credit card and debit card payments also in future. He also argues that with the provision of review every six months, there is a real possibility of the MDR changing over time.  

“…the Finance Ministry’s 14th September 2026 notification creates a wider concern: since the law is changed, the government could extend charges to more categories of UPI and RuPay debit-card transactions through notifications—without returning to Parliament. Who gains immediately? PhonePe could be the biggest beneficiary,” Srivastava tweeted. He echoes the suspicion voiced by the Leader of the Opposition that the MDR tweak is meant to help the two American service providers who control 80 per cent of the digital transactions in India. India, the LOP had said explicitly, had succumbed to US pressure once again.

Fintech experts are pointing out that the UPI infrastructure was made entirely by Indian tax payers’ money and Indian technological expertise. The government, they are saying, has handed over this gateway to foreign-based service providers, who should have been paying a participation fee instead. BharatPe founder Ashneel Grover, interviewed on TV, dismissed the Ministry’s claim that the Government could no longer subsidise the UPI infrastructure and it was time for users to pay.

“India's top three banks made a profit of Rs 2.24 lakh crore in 2026-27. The Reserve Bank of India's surplus transfer to the government was Rs 2.86 lakh crore. India's banking regulator makes a lot of money. So given that subsidising the few thousand crores that it costs to run the UPI is small change, in whatever way it's done, through the RBI or through the government. Which is why the argument that the system can't continue to subsidise UPI is basically rubbish,” said Grover. Even the National Payments Corporation of India (NPCI), formed in 2008, Grover argued, is not running at a loss but even NCPI, run by the RBI and Indian Banks’ Association on a no-profit-no-loss basis, declared a surplus.

Vivek Kaul, a prolific writer on the Indian economy, too dismissed the Ministry’s claim that consumers will not feel the pinch. Merchants will transfer the burden to the consumers, he said and added that the UPI controversy was unnecessary. Grover too says that UPI is the one innovation that India can be proud of and it was working well. There was no need to disturb it. Kaul agrees. “For a government whose main goal all these years has been to control the narrative, I sincerely wonder why are they playing this UPI-UPI thing? It makes no sense. Just introduces needless confusion into a system which has been working well,” tweeted Kaul.

An exasperated Grover said on TV that any Indian could Google for the facts and would know in five minutes what this is all about. “RBI surplus to Govt: Rs 2.87 Lakh Crores (US$30 Bn); Total listed bank profits: Rs 4.11 Lakh Crores (US$42 Bn) NPCI - which runs UPI pre-tax ‘surplus’: Rs 1,888 crores (US$200 million)…Toh nuksaan kis ka ho raha hai UPI se aur kaunsi subsidy de rahi hai Govt UPI pe jo chubh rahi hai?” …any levy on UPI is just tax collection…”, he tweeted.

Srivastava added a different dimension to the debate. “Why Should Indians pay to raise PhonePe’s valuation?” he asked on social media. “PhonePe could be the biggest beneficiary. The Walmart-owned company processes around 45 p.c. of UPI transactions. It was valued at $12 billion in 2023 but paused its India IPO in March 2026 after its estimated valuation reportedly fell below $10 billion. Even a share of MDR revenue could add billions of dollars to its IPO valuation,” tweeted Srivastava.

“India has already given American technology companies extraordinary access to UPI—a publicly funded payment infrastructure built by Indian institutions and banks. These platforms receive massive transaction volumes and valuable insights into the spending behaviour of hundreds of millions of Indians. Why should Indian consumers finance them? India could instead impose an annual participation fee—perhaps $100 million—on each dominant foreign platform benefiting from UPI. Yet the government appears ready to shift the cost to merchants, who will eventually pass it on to consumers,” he went on to add.

The change also seems aligned with a US grievancess against India’s UPI, Rupay card which hurt business of American Visa and Mastercard in India, Srivastava points out.

“In July, the government relaxed FDI rules for foreign e-commerce companies—read Amazon—although only for exports. America may want this opening be extended to domestic sales. India must not accept unreasonable demands that weaken successful Indian public infrastructure and transfer value from Indian consumers to American corporations. UPI is one of India’s greatest digital achievements. It should remain a no-cost public good—not become a revenue stream for foreign technology giants,” he argued.