India Parliament Amends Zero-MDR Rule to Permit UPI Merchant Fees

Parliament has amended the six‑year zero‑MDR (merchant discount rate) law, allowing banks and payment service providers to charge merchants a fee for transactions processed through the Unified Payments Interface. The change ends a long‑standing fee‑free regime.

Payments chief said the new fee structure could generate significant revenue for the payments ecosystem while encouraging banks to invest in better infrastructure and security, noting that AI will play a major role in the next growth phase.

PhonePe announced plans to use UPI’s open network to launch digital‑lending products, extending credit to small merchants and consumers directly through the payment app, signaling a shift from pure payments to broader financial services.

Industry analysts predict that the introduction of merchant fees and AI‑driven lending could reshape India’s digital payment market, potentially increasing transaction volumes and attracting foreign investment, while regulators monitor consumer protection and competition impacts.