PAYMENT SYSTEMS ACT AMENDMENT 2026: WILL UPI BECOME CHARGEABLE?

Why In News?

The Lok Sabha amended Section 10A of the Payment and Settlement Systems Act, 2007, to empower the Central Government to decide which electronic payment modes — including UPI — can attract Merchant Discount Rate (MDR) charges.

What Is the Payment and Settlement Systems Act, 2007?

It was enacted to provide a legal framework for the regulation and supervision of payment systems in India, covering electronic fund transfers, card-based payments, and other payment instruments.

The Act designates the RBI as the principal regulator of payment systems, with powers to authorise, regulate, and supervise all payment system operators.

Covers systems like RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer), IMPS (Immediate Payment Service), UPI, and card networks, setting the legal basis for their operation.

Since 2020, Section 10A has barred banks and payment system providers from levying any charge on prescribed electronic modes, including UPI and RuPay debit cards.

• 2026 amendment does not itself impose a UPI charge, but it removes the automatic legal shield and hands the government discretionary power to permit MDR on UPI transactions in future, if it chooses to.

What is Merchant Discount Rate (MDR)?

It is the fee paid by a merchant to the acquiring bank/payment service provider for processing digital payment transactions made through credit cards, debit cards, UPI (where applicable), or other electronic payment instruments. 

The fee is shared among the acquiring bank, issuing bank, card network (Visa, Mastercard, RuPay, etc.) and payment service providers. 

Key Features

• Paid by merchants, not customers: RBI requires merchants not to pass MDR charges to customers for debit card transactions.  .

• Supports the digital payment ecosystem: MDR finances payment infrastructure such as POS terminals, QR-code acceptance, payment gateways, fraud management and settlement services.   

• Differential MDR: RBI prescribes different MDR caps based on merchant turnover and acceptance infrastructure (physical POS vs. QR-code based acceptance) to encourage digital payments.  

Source: THEHINDU