New Delhi, Sept. 17: The government has rejected allegations that the introduction of the Merchant Discount Rate (MDR) on select UPI transactions was driven by external pressure, calling the claim “patently false and misleading” and linking the move to efforts to create a sustainable revenue model for smaller domestic players.
In a statement issued on Thursday, the Finance Ministry’s Department of Financial Services referred to a 2026 report of the US Trade Representative (USTR), which had raised concerns over the participation of US electronic payment service providers in the UPI ecosystem and the market-share cap imposed on third-party application providers.
The department also released a copy of the USTR report cited in the allegations.
According to the government, the USTR report highlighted the inability of US electronic payment services suppliers to participate in UPI transactions, including credit transactions, on a level playing field with RuPay.
The Finance Ministry said an NPCI circular issued on September 15, 2026, permits credit transactions on UPI only through RuPay credit cards. It said the policy was intended to enable RuPay credit cards to become the preferred choice among credit card users in India.
The second issue raised by the USTR concerned NPCI’s 30 per cent market-share limitation for third-party application providers. NPCI announced the cap in November 2020, with enforcement scheduled for December 2026.
The government said the limitation could not be implemented earlier because companies outside the market-leading platforms were unable to compete without a self-sustaining revenue model.
It said the introduction of MDR on select high-value UPI transactions would provide smaller companies with such a revenue model, allowing them to expand their operations and compete for a larger share of the UPI ecosystem.
The Finance Ministry maintained that the move was therefore aimed at increasing the participation of domestic companies in UPI rather than responding to external pressure. It described the measure as part of efforts to protect India’s sovereignty in the electronic payments ecosystem.
The government also said it had promoted RuPay credit and debit cards as domestic alternatives in the payments system. It added that debit card transactions had been kept free of MDR to support the continued growth of RuPay credit cards.
The dispute over the rationale for MDR comes as changes to the UPI payments ecosystem could affect payment providers, merchants and consumers, particularly as the market-share limitation for third-party application providers approaches its scheduled enforcement in December 2026.
