Payment industry disappointed with Rs 2,000 crore budget subsidy for UPI and RuPay debit card

Budget 2026 UPI subsidy disappoints payment firms

• Payment industry unhappy with Rs 2,000 crore subsidy for UPI, RuPay growth
• PCI: Low incentives will hinder digital payment growth, especially in rural areas
• Industry urges government to permit controlled MDR for large merchants' growth.

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The payment industry has expressed disappointment at the "paltry subsidy allocation" for the growth of Unified Payments Interface (UPI) and RuPay debit cards.

According to the industry, without the Merchant Discount Rate (MDR) and low subsidies, the growth of digital payments will be severely impacted.

On February 1, the Finance Minister Nirmala Sitharaman allocated Rs 2,000 crore as incentive expenditure for UPI and RuPay debit cards.

Digital transactions carry what is called a merchant discount rate (MDR), a fee that banks collect from merchants at the point of sale for facilitating digital payments. UPI MDR was 30 basis points before the government waived it in 2020. One basis point is one-hundredth of a percentage point.

"The UPI transaction value growth has already dropped to 13 percent. And to expand to rural areas and tap the real potential of UPI, you need to invest four-five times this amount. Private companies in the UPI space are unlikely to do that without subsidies," said a chief executive with a payment company.

The Payment Council of India (PCI), which represents payment and fintech companies, was scathing in its comments.

“With Zero MDR of UPI and the Government allocating a mere Rs 2,000 crores for processing 30 crore transactions every day for free, will choke the entire ecosystem for funds for scaling and growth. With these kinds of incentives for the fintech industry, it will be very difficult to get the next set of 300 million (or 30 crore) Indians on the Digital payments bandwagon as well as deploy acceptance mechanisms in the hinterland of our country," said Vishwas Patel, Managing Director, AvenuesAI Ltd and chairman of PCI.

To promote the adoption of digital payments, the government mandated that UPI transactions remain free for users, and in return, it will compensate payment firms for the costs they bear to facilitate them.

PCI was expecting the government incentive to be above Rs 10,000 crores. The industry body noted that increasing deployment and servicing costs, as well as increasing RBI compliance costs, impose a high cost on fintech companies.

Most payment companies are not necessarily asking for subsidies or incentives, but rather MDR on high-value payments at merchant establishments, which can cross-subsidise low-ticket transactions.

"The only solution is for the government to allow us to charge a low-controlled MDR of 30 BPS on UPI P2M (person-to-merchant) transactions only for merchants with more than Rs. 20 lakhs turnover," PCI said.

UPI is the country’s most popular digital payment method, facilitating around 85 percent of all online transactions.

There are approximately six crore merchants in India that accept digital payments, out of which 90 percent are categorised as small merchants as per the definition of RBI (turnover Rs. 20 lakh and below per annum), with around 50 lakh merchants categorised as large enterprises.

"Enabling MDR for Rupay Debit and UPI large merchants will ensure sustainable monetisation for service providers without disrupting digital payment adoption at the grassroots level, as the merchants already pay MDR for different payment systems," Patel added in the statement.

According to payment firms, UPI will continue to be popular with consumers and merchants irrespective of any MDR. Most digital payment methods charge MDR ranging between 75 BPS to 150 BPS.