Union Budget 2026: Payment companies push for bigger subsidy, return of MDR

Payment companies look forward to higher subsidy

• Payment industry seeks higher UPI subsidy in 2026 Union Budget
• Current UPI subsidy falls short of industry needs for expanding digital payments
• PCI calls for MDR reinstatement for large merchants and all Rupay Debit cards.

Did our AI summary help?

Even as the Unified Payments Interface (UPI) has been setting new records for transaction volume and value every month, with an annual growth rate of around 30 percent, the industry is expecting a higher subsidy for the ecosystem in the 2026 Union Budget.

The Payments Council of India and other payment companies have requested a higher subsidy for UPI from the finance ministry this year, according to three separate sources.

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.

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.

“Since there has been no announcement on MDR since the subsidy allocation, we would like to have a higher subsidy than was announced last year. But we are not sure what the government is planning. But for UPI to reach rural areas and new segments of population, MDR is essential,” said a senior executive with a payments firm that has been part of the process to reach out to the finance ministry

However, last year, the central government announced Rs 1,500 crore as a subsidy for UPI transactions at merchants, as against the industry expectation of around Rs 5,000 crore.

In 2024, the government subsidy for UPI was Rs 3,500 crore. As per the government policy, it provides 15 basis points (bps) of subsidy for UPI transactions below Rs 2,000.

In 2025, the likely subsidy bill would have been around Rs 6,000 crore, indicating a shortfall of Rs 4,500 crore in FY 2025.

UPI is the country’s most popular digital payment method, facilitating around 85 percent of all online transactions. The platform run by the National Payments Corporation of India (NPCI) sees over 21.5 billion transactions in a month, worth over Rs 28 lakh crore.

“The budget is a significant contributor to the continuity of UPI transactions being supported by zero MDR, in particular, for small-value merchant-to-client payments (M2C) for amounts up to Rs 2,000,” said Rohit Mahajan, founder and managing partner of PlutosOne, a technology infrastructure firm that works with payment firms.

With UPI becoming the primary option for conducting financial transactions, it is essential for both merchants and the industry to benefit from MDR subsidies, Mahajan said, adding, “For the payment firms to continue to develop in the direction of financial inclusion and support innovation in the next stage of India’s digital finance evolution, this needs to be addressed.”

PCI, which represents payment and fintech companies, has requested the reintroduction of 30bps or 0.3 percent as MDR on UPI payments for large merchants. Large merchants are those with a turnover of over Rs 40 lakh annually.

It also demanded that the government consider MDR for all Rupay Debit card transactions, which aligns with the existing MDR structure for credit cards (around 2 percent) and for non-Rupay debit cards (around 0.75-0.9%).