Panel Warns Delay in Tiered MDR Rollout May Hit Payment Firms' Cybersecurity Spend

Payment service providers could be pushed into relying on inadequate government support if the tiered merchant discount rate (MDR) structure for UPI and RuPay transactions is not notified and rolled out soon, a parliamentary panel has said, warning this could hurt spending on cybersecurity, fraud prevention and network infrastructure.

The Standing Committee on Finance, led by Bhartruhari Mahtab, made the observation in its 44th report, tabled in the Lok Sabha on August 12. The report examines how the government has acted on the panel's earlier recommendations concerning the Department of Financial Services' Demands for Grants for 2026-27.

Its tabling came two days after the Rajya Sabha cleared the Taxation and Other Laws (Amendment) Bill, 2026. The legislation amends the Payment and Settlement Systems Act, 2007, doing away with the legal bar on levying MDR on UPI and RuPay debit card payments.

The committee acknowledged that a legal pathway now exists for a calibrated MDR on high-value transactions. Even so, it pointed to a wide gap between the ₹2,000 crore set aside in the budget and the ₹20,700 crore the industry estimates it needs to cover operational costs. The ₹2,000-crore allocation in Budget 2026 was meant to cushion the impact of the zero-MDR rule on RuPay debit cards and smaller UPI merchant payments.

Finance Minister Nirmala Sitharaman has previously said that any MDR, once notified, would only apply to a limited set of large merchants crossing a defined turnover threshold. She had assured that UPI transfers between individuals and payments by small traders, including vegetable and tea sellers, would stay free of any such charge.

Beyond payments, the panel raised similar funding concerns for two pension schemes. Gap funding for the Pradhan Mantri Vaya Vandana Yojana (PMVVY) has jumped from ₹27.58 crore in FY23 to ₹597.33 crore in FY26, it noted, while the Atal Pension Yojana (APY) continues to require ₹202 crore in annual support.

According to the committee, the department's response gave no indication of a long-term strategy to shield these schemes from interest rate fluctuations.

The committee has called on the department to move faster on notifying the tiered MDR framework for larger merchant transactions, while keeping small merchants and person-to-person transfers exempt. It also wants the department to examine whether schemes like PMVVY and APY can remain financially sustainable in the long run.