RBI, NPCI, the Ministry of Finance is keen to charge merchants to enhance the local payment network

Mumbai/New Delhi:Five sources told Reuters that India’s payment bureau, central banks and industries are prompting the government to pay digital payments to large merchants made through local networks to help grow.

The fee, known as Merchant Discount Rate (MDR), is considered critical to increase investments in payment companies and slow payment growth through a unified payment interface (UPI), sources said.

Sources said a tax rate of 0.2% to 0.3% of the value of each transaction has been proposed, which is still below the fees for credit and debit card payments.

An industry executive said MDR is usually borne by merchants and therefore not passed to customers.

Prime Minister Narendra Modi’s office will make a final decision, but the federal Treasury supports its implementation, two sources said.

All sources request anonymity because the discussion is private.

The Prime Minister’s Office, Reserve Bank of India, Ministry of Finance and National Payment Corporation of India (NPCI) did not immediately respond to emails seeking comments.

No cash

Modi tried to reduce the use of local cash to encourage transparency and formalization of the economy, including through the controversial 2016 decision to devalue the Big Value Note.

That and the shared 19-year-old pandemic both help increase the popularity of digital payments in India.

According to NPCI data, the average monthly volume of UPI transactions has risen from the current 1.6 billion to 17 billion over the past five years.

Last month, Indians made payments worth Rs 24.7 trillion (US$28.965 billion) in March through the UPI network, with more than a quarter of them going to merchants.

But UPI payments growth has slowed, with monthly transactions growing by about 25% on average in 2025, down from 35% last year.

Walmart-backed Phonepe and Alphabet’s GooglePay are currently dominant in India’s UPI payments, which have previously asked MDR to collect merchant payments. Neither company responded to an email seeking a story comment.

According to a letter reviewed by Reuters, the Payment Council of India (PCI), a lobbying body, has asked the Prime Minister’s Office to pay 0.3% MDR to large merchants through UPI.

“Without MDR, it’s hard to get the next set of Indians on the digital payment trend. ”