New Delhi: The Finance Ministry on Thursday rejected allegations that US pressure drove the decision to introduce a 0.4 percent Merchant Discount Rate (MDR) on select UPI payments, saying the new rules give international credit cards no additional access to the platform.
The Department of Financial Services (DFS) said the National Payments Corporation of India’s (NPCI) September 15 circular retains RuPay’s exclusive access for credit card transactions on UPI.
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“The allegation that MDR has been introduced under any external influence is patently false and misleading,” DFS said in a post on X.
The clarification follows criticism from opposition parties, including Congress, that the government had yielded to Washington’s demands by introducing charges on certain merchant payments above Rs 2,000.
DFS said the policy continues to allow only RuPay credit cards to be linked to UPI, with the objective of making them a preferred choice among Indian users.
The clarification addressed concerns raised in the US Trade Representative’s (USTR) 2026 report about American payment providers’ inability to participate in the UPI ecosystem, including credit transactions, on equal terms with RuPay.
The ministry argued that the MDR decision does not open this segment to foreign card networks. It also highlighted the government’s promotion of RuPay as a domestic alternative, with RuPay debit card payments remaining free of MDR.
The government said selective MDR would help smaller payment companies build sustainable businesses and compete with UPI’s market leaders.
NPCI announced a 30 percent transaction market share cap for third-party app providers in November 2020. Its enforcement has since been deferred, with the current deadline set for December 2026.
DFS attributed the difficulty in implementing the cap to smaller companies’ inability to compete without a self-sustaining revenue model.
“Introduction of MDR on select high-value transactions will provide a self-sustaining revenue model to smaller companies to compete for a higher share in the UPI ecosystem,” it said.
The government presented the measure as a way to expand domestic participation and strengthen India’s control over its digital payments ecosystem.
A 0.4 percent MDR will apply to specified person-to-merchant UPI payments above Rs 2,000 from October 15. Merchants will pay the fee, which will be capped at Rs 300 for transactions of Rs 75,000 or more.
Person-to-person transfers will remain free. The framework also provides several exemptions and lower rates:
Essential services: Railways, telecom, fuel and insurance payments above Rs 2,000 will attract a flat Rs 5 fee.
Capital markets: Mutual fund and stockbroking transactions will attract a 0.02 percent rate, capped at Rs 300.
Small merchants: Businesses collecting up to Rs 1 lakh a month through UPI QR codes will remain exempt.
Rural and semi-urban merchants: UPI QR payments will remain free.
Officials say about 96 percent of merchant transactions will remain unaffected. Five percent of MDR collections will go into a dedicated fund to expand UPI acceptance among small merchants.
The USTR’s 2026 National Trade Estimate Report raised concerns about Indian payment policies that it said favour domestic suppliers over foreign competitors.
Besides RuPay’s position on UPI, the report flagged NPCI’s market share cap and plans to expand the National Common Mobility Card, which it said could disadvantage foreign providers.
According to the report, two US-owned payment providers together processed more than 80 percent of UPI transactions as of December 31, 2025.
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GTRI founder Ajay Srivastava offered a contrasting assessment, arguing that dominant foreign-owned platforms could be the immediate beneficiaries of MDR revenue.
In a social media post, he said Walmart-owned PhonePe, which processes around 45 percent of UPI transactions, could gain significantly. He argued that an additional revenue stream could also boost its prospective IPO valuation.
Srivastava said PhonePe and Google Pay together account for more than 80 percent of UPI transactions, giving them substantial access to India’s publicly built payments infrastructure.
He proposed an annual participation fee on dominant foreign platforms instead of charging merchants, warning that businesses could ultimately pass the cost to consumers.
While the government says MDR will support competition and domestic expansion, GTRI’s criticism centres on whether the additional revenue will primarily strengthen the platforms that already dominate UPI.
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