India paves way for return of merchant fees on digital payments

India is preparing to bring back merchant fees on its wildly popular Unified Payments Interface, ending a six-year experiment with zero-cost digital transactions that the country’s own lawmakers have called unsustainable. The Taxation and Other Laws (Amendment) Bill, introduced in the Lok Sabha on August 4-5, 2026, would amend Section 10A of the Payment and Settlement Systems Act, 2007, allowing banks and payment service providers to once again charge Merchant Discount Rates on select UPI transactions. What’s actually changing India banned MDR on UPI and RuPay debit card transactions back in January 2020, part of a sweeping push to get a billion-plus people comfortable tapping their phones instead of counting cash. UPI processed a staggering 241.6 billion transactions worth ₹314.2 lakh crore in fiscal year 2026, a 30% year-on-year jump in volume. July 2026 alone set a record with 23.7 billion transactions valued at ₹29.9 lakh crore. Government subsidies have covered only about 11-14% of the industry’s actual infrastructure costs. A March 2026 Parliamentary Standing Committee report put it bluntly, labeling the zero-MDR model unsustainable and calling for a viable revenue stream. Th...