GTRI Urges Withdrawal Of MDR On UPI, Calls For Independent Audit, Resistance To US Pressure

The Global Trade Research Initiative (GTRI) has urged the government to withdraw the proposed Merchant Discount Rate (MDR) on select Unified Payments Interface (UPI) transactions, arguing that the move could raise business costs, weaken household demand and reduce UPI’s price advantage over card networks.

GTRI also called for an independent audit of UPI’s actual operating costs and said banks, the National Payments Corporation of India (NPCI), payment apps and the government should share the expense through a transparent funding arrangement.

"The government should withdraw the proposed UPI changes scheduled to take effect on October 15 and keep UPI free for merchants and consumers. Charging merchants could raise prices, squeeze small-business earnings and weaken household demand. It would also reduce UPI’s price advantage over cards, benefiting US card networks and payment platforms," GTRI founder Ajay Srivastava said in a report on October 7.

"An independent audit should establish and publish UPI’s actual running costs. The government, banks, NPCI and payment apps should then share these costs through a transparent funding arrangement. Institutions unwilling to participate should be free to opt out," he added.

Flags Costs For Merchants And Consumers

Under the proposed framework, a 0.4% MDR will apply from October 15 to eligible UPI merchant transactions above ₹2,000, while transactions up to ₹2,000 will remain free.

GTRI said exempting smaller transactions may not fully shield consumers because merchants could spread payment-related costs across their overall prices.

"Shopkeepers may recover MDR on larger bills by raising prices across their shops. Maintaining different prices for the same product according to bill size or payment method is difficult," it said.

"Consider shirts priced at ₹500 each. Buying one attracts no UPI fee. Buying five creates a ₹2,500 bill and, at 0.4% MDR, a ₹10 fee. To recover fees on larger sales, the shopkeeper might raise the common price to ₹505. A customer buying one shirt would then pay ₹5 more despite making an exempt payment," it added.

The think tank also said payment charges could accumulate across supply chains as farmers, processors, wholesalers and retailers make eligible transactions. It added that the 18% GST applicable on MDR could become an additional cost for unregistered businesses and composition taxpayers that cannot claim input tax credit.

GTRI also flagged the proposed ₹1 lakh monthly UPI-receipt threshold for merchant classification, saying turnover should not be equated with profit. It said small businesses could cross the threshold despite having limited earnings available for household expenses.

"At a 20% profit margin, monthly sales of ₹1 lakh leave only ₹20,000 for food, rent, electricity, school fees and other family expenses. A vendor relying mainly on UPI could cross the threshold while earning barely enough to support a household," it argued.

RBI Says 'Small Fee' Unlikely To Hit UPI Volumes

GTRI's concerns come as the rollout of the measure from October 15 is nearing, and after RBI Governor Sanjay Malhotra said a “small fee” was unlikely to have a major impact on UPI volumes.

“As of now, we do not see any drop in volumes. And I don't personally think that a small fee will have a major impact on the volumes,” Malhotra said, as per a report by PTI.

Outlook Business earlier reported that National payments Corporation of India (NPCI) data showed that UPI processed 24.06 billion transactions worth ₹29.37 lakh crore in September, down 1.8% in volume and 1.5% in value from August.

The transactions have also, notably, dropped through the second half of the month after the measure was announced on September 14.

MDR Can Benefit US Firms

GTRI further argued that reducing UPI’s cost advantage could benefit Visa and Mastercard, as well as US-linked digital payment businesses, including Walmart-backed PhonePe and Alphabet-backed Google Pay.

It urged India to retain free UPI payments and resist pressure to weaken the system's competitive advantage, citing Brazil's defence of its domestic Pix payment network as an example.

"The US Trade Representative’s 2026 National Trade Estimate Report criticised India’s digital-payment rules as favouring domestic providers and sought a level playing field for US payment companies. The commercial interests involved include Visa and Mastercard, as well as Walmart-linked PhonePe and Alphabet’s Google Pay," it said.

According to GTRI, PhonePe and Google Pay, which together handle more than 80% of UPI transactions and have a duopoly in the market share, could earn a share of merchant fees if the fee-sharing arrangement provides for it. "Their market dominance would give them a large potential base for such earnings," it added.

The report also argued that the card networks such as Visa and Mastercard could also seek access to UPI comparable to that enjoyed by RuPay credit cards.

"Visa and Mastercard could benefit when UPI loses part of its price advantage. Free UPI allows merchants to receive the full payment. An MDR reduces that benefit and could make cards more competitive," it said.