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By:

Sachin Udgirkar

14 April 2025 at 7:02:53 pm

UPI Stays Free — But the Rules Behind It Are Shifting

The real question is whether the cost stays confined to the merchant side or finds its way into prices. For a decade, UPI has run on one promise: instant, free and frictionless. That promise is now being tested. Parliament has cleared the legal path for a Merchant Discount Rate (MDR) on UPI transactions. Untangling what this actually means matters more than the headlines around it. The Taxation and Other Laws (Amendment) Bill, 2026, passed by both Houses this month, amends Section 10A of the...

UPI Stays Free — But the Rules Behind It Are Shifting

The real question is whether the cost stays confined to the merchant side or finds its way into prices. For a decade, UPI has run on one promise: instant, free and frictionless. That promise is now being tested. Parliament has cleared the legal path for a Merchant Discount Rate (MDR) on UPI transactions. Untangling what this actually means matters more than the headlines around it. The Taxation and Other Laws (Amendment) Bill, 2026, passed by both Houses this month, amends Section 10A of the Payment and Settlement Systems Act, 2007. It is, by the government's own description, an enabling provision — it does not impose any charge itself. It creates a mechanism through which the NPCI-headed UPI and Services Steering Committee can later decide whether an MDR should apply and to what. No such decision has been finalised. Consumers, including all peer-to-peer transfers and the vast majority of merchant payments, remain untouched. Any future MDR is expected to target a narrow band: merchants above roughly Rs 1-1.5 crore annual turnover, on transactions above Rs 2,000, at 0.05-0.07 per cent — a fraction of the 1.8 per cent long charged on card payments. The framework is structured to leave close to 90 per cent of UPI-accepting merchants, mostly small and micro-businesses, outside it entirely. Industry Push The economics behind the push are straightforward. UPI processed 2,366 crore transactions worth nearly Rs 30 lakh crore in July alone and now accounts for 60-65 per cent of the volume flowing through payment aggregators. Under zero MDR, all of that volume generates no direct transaction revenue. This turns what should be a revenue line into a cost centre for the companies actually running the rail. Government incentive schemes meant to offset this haven't kept pace. The RuPay/BHIM incentive outlay fell from Rs 3,631 crore in FY24 to Rs 437 crore in FY26 before being revised up after industry pushback. Meanwhile, transaction volumes jumped from 17,220 crore in 2024 to 22,830 crore in 2025. Industry estimates put the annual cost of processing merchant transactions alone at Rs 4,000-5,000 crore. That cost is currently absorbed by banks and aggregators, with no mechanism to recover it. The Payments Council of India has backed the change on these grounds, arguing that sustained investment in infrastructure, cybersecurity and fraud prevention needs a funding mechanism to survive at this scale. The Key Question This is where the debate sharpens. The RBI Governor observed, just before the bill passed, that consumers ultimately bear such costs "in some way or another". This would not be a visible fee but through pricing that businesses adjust over time. That's a structurally different claim from "consumers won't be charged". Both can be true at once: no one sees a UPI fee on their app, while merchants who pay MDR gradually build it into prices, as most costs eventually are. A Local Circles survey of over 45,000 respondents across 322 districts found that 53 per cent would consider moving away from UPI for transactions above Rs 3,000 if MDR applied to large merchants. Of these, 27 per cent would move towards credit cards, 14 per cent towards debit cards, and 12 per cent towards cash or bank transfers. That doesn't mean half of India's UPI users are about to switch. It does mean payment behaviour often responds to the perception of a cost, not its actual, often negligible size. That is why regulators may need to be explicit about keeping any future MDR invisible at the point of sale, rather than allowing it to surface as a checkout surcharge. Who Gains Enterprise-focused payment aggregators and banks stand to benefit most directly, finally earning revenue on volume they currently process for free. Smaller technology-led players may also find it easier to compete in a market no longer weighted towards zero-revenue transactions. Notably, the big consumer apps PhonePe, Google Pay and Paytm aren't expected to be primary beneficiaries, since they already monetise elsewhere in their business. Any MDR revenue would likely flow to banks and aggregators rather than reshape how these apps make money. For Users Nothing changes today. Peer-to-peer transfers and the overwhelming majority of merchant payments stay free, and that isn't in dispute. What exists now is only the legal door for a narrowly scoped fee to be introduced later on a specific slice of larger merchant transactions. That decision sits with NPCI's committee, not this bill. The more useful thing to watch isn't whether UPI is "ending" as a free system. Every clarification so far says it isn't. The question is whether, once a fee is eventually finalised, its cost stays confined to the merchant side. Or does it find its way, gradually and indirectly, into the price of the things UPI is used to pay for? (The writer is an IT professional based in Thane. Views personal.)

ASEAN Out, Brazil In

India’s decision to pull out of the inaugural FIFA ASEAN Cup for a high-profile friendly with Brazil sends the wrong signal at a time when its Act East policy demands consistency and commitment.

On the eve of India’s 80th Independence Day, Indian media carried the news of India’s withdrawal from the inaugural FIFA ASEAN Cup football tournament, as announced by the All India Football Federation (AIFF) a day before. Justification for the said decision explained that Indian participation in the said tournament would have clashed with the later proposed and approved friendly match with the high-profile and five-time world champions Brazil, scheduled in October. This development should take Indians by surprise, and preferably, a shock!


Before commenting on that development, and try elaborating on that shock, let us have a look at the background information - This inaugural FIFA (Federation of International Football Associations) tournament was conceived as a new international competition for teams from the ASEAN region, the announcement of which was made by the FIFA President Gianni Infantino in October 2025. India was invited as one of the three non-ASEAN participants. India had accepted the invitation to participate, and was subsequently drawn in the Premier Division hosted by Indonesia. This division consisted of six ASEAN countries - Indonesia, Singapore. Malaysia, Thailand, Vietnam and Philippines - along with Pakistan. The other, Challenger Division, included the rest of ASEAN – Myanmar, Laos, Cambodia, Brunei and Timor-Leste, - along with the division’s host Hong Kong. The competition is taking place between the third week of September and the first week of October.


AIFF seems to have thought it fit to withdraw, in favour of a friendly with Brazil on October 3 at Kolkata’s Salt Lake Stadium, treating that as a better option. The question, however, is whether that was really better or was even good in the first place. In order to make this later development appear meaty and attractive additional reports pour in to suggest that India is exploring friendlies against other teams that featured at the 2026 FIFA World Cup, among the sides, with Cape Verde and Iran being under discussion, though those fixtures have not yet been officially confirmed.


Grave Error

What is the root of this extravagant thought? Was it not appropriate for India to participate in FIFA ASEAN Cup after having failed to qualify for the 2027 AFC (Asian Football Confederation) Asian Cup, and after struggling to secure regular high-quality opposition in recent years than engaging in high-sounding casual friendlies?


India seems to have committed grave errors of judgement in this matter. First of all, it is amply clear that the FIFA event was planned sufficiently in advance, and India had committed itself to participation in that, and was accordingly slotted in a particular group of participants. Then why this sudden withdrawal? Is it only for the glitz attached to the name of Brazil? Or is it because Pakistan too was invited to participate, and was clubbed in the same division? We don’t know that, but what we come to know subsequently is about India’s replacement by Bangladesh in that vacant slot by FIFA. That again cannot be seen as a good development from any angle.


Secondly, are Indian policy-makers having a nap? How do they allow this twist in India’s Act East policy? This twist, though unintentional it may be, is highly undesirable when India should be making effort to get closer to ASEAN and its member states, aligning with the stated policy, and not switching on and off casually whenever it feels like. Thirdly, it is not only ASEAN but also particularly Indonesia, the host of the division India was placed in, and which figures prominently in many slots in India’s policy framework. During his last visit of July 2026 to Indonesia, PM Modi had reiterated many things of common interest between the two countries, emphasizing further tuning for strengthening collaborative Global South movement, and leading it from the neighbourhood. What about that? Some may argue that small things like sporting events don’t matter much. Some may stretch it further, pointing at Brazil as an emerging Global South power and try to balance things out. Such arguments are frivolous, to say the least. Relationships don’t grow on slogans and catch-phrases making waves in the air; they grow on a turf maintained through consistent & sincere efforts, and the perceptions they allow to form with their presence or absence.


Nurturing Relationships

India had, for many reasons, missed the bus in 1967 in getting inside ASEAN as a member state, despite having a strong civilizational connection with the region. It entered that orbit only a quarter century later, thanks to then Govt. of India’s ‘Look East’ pivot, and the urge of then ASEAN member states to move closer to balance out China’s aggressive presence. India made things more positive in 2014 by turning ‘Look’ into ‘Act’ East. But the show does not get over just by doing that, as some in India may like to believe. The relationship needs further nurturing, not treating it as a series of mere catchy episodes.


Last but not the least - the state of India’s policy intervention was visible to all during the Asia Cup cricket tournament last year when Indian team players refused to shake hands with their Pakistani counterparts as a decided gesture of national resentment at the backdrop of the Pahalgam terror attack supposedly mobilised by terror network operating from the Pakistani soil and with Pakistani state’s blessings. Then why no such intervention to reverse AIFF’s decision replacing ASEAN with Brazil? Or was that a gimmick, preferring more popular cricket’s turf to seek popularity for certain state policies?


(The writer is a Ph.D. researcher in international relations. Views personal.)

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