Dinesh Khara, former Chairman of SBI, said the sheer volume of low-value transactions is putting pressure on the system and argued that MDR could help strengthen the technology rails.
“A very significant number of transactions are up to ₹500. So, naturally, the volumes which have gone up actually lead to the pressure on the system,” Khara said.
He, however, stopped short of backing MDR across the board, saying low-value transactions may not need to attract a charge. “That will ensure equity. That will ensure that the players who are already there in the system can invest in the technology,” he said.
PineLabs CEO Amrish Rau also favoured a differentiated approach. Consumers, he said, should not be charged for UPI, while small merchants should be protected from additional costs. Large merchants operating at scale, however, could contribute towards maintaining the ecosystem.
Rau said a fee would not necessarily discourage merchants from using UPI. “I have never seen a merchant refuse a commerce transaction because of 1% being charged on it,” he said.
He suggested that an MDR of around 25-35 basis points could be an appropriate range, arguing that the economics would become more meaningful as UPI expands into smaller cities.
Scaling UPI beyond the big cities
The challenge now is not simply getting more people to use UPI, but building an ecosystem capable of supporting its next leg of growth.
Rau said almost ₹50,000 crore has already been invested by banks, fintech companies and venture capital investors in building the UPI ecosystem. Scaling its reach further will require the economics of the network to evolve.
“For us to scale from this 30% number to 80% number, I think we are going to have to look at these mechanics in a slightly different way,” Rau said.
The benefits of that scale are already visible in businesses that simply did not exist a decade ago. Rau said fintech companies have built numerous business models on top of UPI.
“I can rattle off literally 50 examples where new business models have got created,” he said.
Khara said UPI has also played a significant role in formalising smaller businesses by giving banks visibility into their cash flows, potentially making it easier to extend credit.
“With the help of UPI, since we have got very clear visibility of the credit history or maybe the transaction volumes of the SMEs and also the small businesses, it’s very easy to lend to such businesses,” he said.
He expects digital lending against UPI-linked cash flows to become increasingly popular, as lenders use transaction data to identify cash-flow gaps and fund them digitally.
From payments rail to economic infrastructure
For AP Hota, former CEO of NPCI, the economics of UPI were always part of the equation. He said the government removed MDR during the COVID period because of the role UPI was playing as physical contact declined and e-commerce surged.
“Economics was very much in the mind,” Hota said, adding that UPI is not entirely free because NPCI and some payment players continue to receive compensation, while banks and certain intermediaries have not been adequately compensated.
He backed MDR for selected categories rather than across all transactions.
Looking ahead, Hota said banks need to invest more in UPI because the shift from cash to digital payments ultimately makes banking more efficient.
Khara, meanwhile, pointed to UPI’s broader economic impact, saying e-commerce during COVID was heavily dependent on the payment rail and that currency in circulation would have risen significantly more without UPI.
After a decade defined by rapid adoption, UPI’s next chapter is therefore about making that scale economically and technologically sustainable — without undermining the low-cost, inclusive model that helped make it ubiquitous in the first place
