Summary of this article
Payment aggregators seek direct shares from any future UPI MDR.
Banks and PAs may face a fee-sharing dispute.
Consumers will not pay MDR on UPI transactions.
Payment aggregators (PAs) are seeking a direct share of any merchant discount rate (MDR) that may be introduced on Unified Payments Interface (UPI) transactions, as the industry prepares for a possible change in the zero-MDR framework.
According to a Business Standard report, PAs want their share to be fixed under the MDR structure instead of depending on acquiring banks to pass on a portion of the fee.
Why PAs Want A Direct Share
PAs help merchants accept digital payments and provide services such as merchant onboarding and payment processing. They generally work with banks that are part of the UPI network.
The aggregators want a defined portion of MDR because they incur costs while bringing merchants onto digital payment platforms and providing services to them. A direct allocation would also give them greater clarity over how much they can earn from each eligible transaction.
This issue has gained pace after Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026. The legislation allows MDR to be charged on UPI transactions in the future.
The government has clarified that customers will not be charged for UPI payments. Any future MDR would cover only a limited category of merchant transactions above a specified threshold.
Banks And PAs Could Face A Fee-Split Debate
A key issue is the position of PAs within the UPI ecosystem. Banks are direct members of the network operated by the National Payments Corporation of India (NPCI), while PAs work through banking partners.
This distinction could make a direct MDR allocation difficult unless their role in the payment network is formally recognised, stated the Business Standard news report. The Reserve Bank of India (RBI) and the Department of Financial Services (DFS) are currently examining the possible MDR structure and how the fee could be divided among participants, the Business Standard reported.
The broader digital payments industry is also expected to approach the government, RBI and NPCI with its views on the proposed framework.
What Could Happen To Merchant Costs
The introduction of MDR does not necessarily mean merchants will face the full cost of the fee. Competition among payment providers could lead PAs to absorb some or all of their share, according to industry participants cited by Business Standard.
Some PA founders also expect MDR to have limited significance for their businesses at present. Their revenue comes from other services, including platform and onboarding-related charges.
For consumers, the government has clarified that UPI payments will stay free. Peer-to-peer (P2P) transactions will also not attract MDR.
Any fee would be restricted to a limited set of merchant transactions above a specified threshold and would be lower than charges applicable to credit and debit card payments.
The UPI and Services Steering Committee under NPCI is expected to decide the potential MDR structure after the relevant provision under the Payment and Settlement Systems Act, 2007, is amended.
