Industry Odisha Bureau, Sep 22: The government could discontinue UPI subsidies for low-value transactions. MDR on larger payments may generate revenue for banks. This could reshape the payment ecosystem’s funding.*
The government could discontinue subsidies for low-value UPI transactions. This follows MDR introduction on larger UPI payments. Banks and payment companies could earn transaction-linked revenue. People familiar with the matter shared these details.
MDR Changes UPI Revenue Equation
Merchant discount rate, or MDR, applies to certain larger UPI payments. It could generate revenue for banks and payment companies. A senior banking official linked this shift to reducing subsidy dependence. The official said taxpayers should not indefinitely fund payments to large merchants. No fresh subsidy has been paid since April 2025, the people said.
Government Incentives Have Already Declined
UPI incentive disbursements have fallen substantially in recent years. Disbursements stood at ₹3,631 crore during FY24. They dropped to ₹1,046 crore in FY25. This decline preceded the current discussion around MDR revenue. The pattern suggests incentive payments were already shrinking.
₹2,000 Crore Budgeted for FY27
The Centre has budgeted ₹2,000 crore for FY27 incentives. This covers both UPI and RuPay transactions. However, no fresh disbursement has reportedly occurred since April 2025. The budget allocation and actual payments remain distinct issues. Whether the full amount will be disbursed remains unclear.
Why UPI Subsidies Were Introduced
MDR on UPI and RuPay debit-card transactions became zero from January 2020. That policy aimed to accelerate digital-payment adoption nationwide. The government then began compensating banks and payment companies. Incentives partly offset the financial impact of zero MDR. They also encouraged small merchants to accept digital payments. The scheme supported investment in secure payment infrastructure. Smaller cities and rural areas were key beneficiaries.
UPI Economics Enter New Phase
MDR revenue could offer banks an alternative funding source. This may reduce reliance on taxpayer-funded incentive schemes. The government’s final decision on subsidies remains uncertain. Budget allocations and actual disbursements continue diverging in recent data. India’s payment ecosystem appears to be entering a new economic phase. How this affects small merchants remains an open question. The shift reflects a broader rethink of who funds UPI’s growth.
