The Indian payment and fintech industry has expressed strong disappointment over the government’s ₹2,000 crore subsidy allocation for Unified Payments Interface (UPI) and RuPay debit cards, calling the amount insufficient to sustain long-term growth of digital payments.
Industry stakeholders believe that without the reintroduction of the Merchant Discount Rate (MDR) or significantly higher incentives, the expansion of UPI—especially into rural and semi-urban India—could face serious challenges.
On February 1, Finance Minister Nirmala Sitharaman allocated ₹2,000 crore as incentive expenditure for UPI and RuPay debit cards to support free digital transactions.
To promote digital adoption, the government mandates that UPI transactions remain free for users, while payment companies are compensated for processing costs through budgetary incentives.
Digital transactions typically carry a Merchant Discount Rate (MDR)—a fee charged to merchants by banks and payment service providers for facilitating payments.
UPI MDR stood at 30 basis points before it was waived by the government in 2020
One basis point = one-hundredth of a percentage point
According to the industry, zero MDR combined with limited subsidies makes it difficult for payment firms to invest in infrastructure, security, compliance, and rural expansion.
A senior executive from a payment company highlighted early signs of stress in the ecosystem:
"The UPI transaction value growth has already dropped to 13 percent. And to expand to rural areas and tap the real potential of UPI, you need to invest four-five times this amount. Private companies in the UPI space are unlikely to do that without subsidies," said a chief executive with a payment company.
The Payment Council of India (PCI), which represents payment and fintech companies, issued a sharp response to the budget allocation.
“With Zero MDR of UPI and the Government allocating a mere Rs 2,000 crores for processing 30 crore transactions every day for free, will choke the entire ecosystem for funds for scaling and growth. With these kinds of incentives for the fintech industry, it will be very difficult to get the next set of 300 million (or 30 crore) Indians on the Digital payments bandwagon as well as deploy acceptance mechanisms in the hinterland of our country," said Vishwas Patel, Managing Director, AvenuesAI Ltd and chairman of PCI.
PCI noted that it was expecting government incentives to be above ₹10,000 crore, considering:
Rising deployment and servicing costs
Increasing RBI compliance costs
Investments required for cybersecurity and fraud prevention
According to the industry, the current allocation is inadequate to meet these growing financial demands.
Interestingly, most payment companies are not demanding direct subsidies. Instead, they are seeking permission to levy MDR on high-value merchant transactions, allowing cross-subsidisation of low-ticket payments.
PCI stated:
"The only solution is for the government to allow us to charge a low-controlled MDR of 30 BPS on UPI P2M (person-to-merchant) transactions only for merchants with more than Rs. 20 lakhs turnover," PCI said.
UPI accounts for around 85 percent of all online transactions in India
India has approximately six crore merchants accepting digital payments
90 percent are small merchants (turnover ₹20 lakh and below per year)
Around 50 lakh merchants fall under the large enterprise category
"Enabling MDR for Rupay Debit and UPI large merchants will ensure sustainable monetisation for service providers without disrupting digital payment adoption at the grassroots level, as the merchants already pay MDR for different payment systems," Patel added.
Payment companies argue that UPI’s popularity will remain intact even if MDR is introduced for large merchants. Most other digital payment methods already charge MDR ranging between 75 BPS and 150 BPS, making UPI comparatively cheaper even with a modest fee.
The outcome of the MDR and subsidy discussion will play a critical role in:
Sustaining India’s digital payments infrastructure
Expanding UPI into rural and underserved regions
Ensuring long-term viability of fintech companies
Supporting India’s push towards a cash-lite economy