UPI growth slows as MDR return debate heats up in India

Zero MDR since 2020 and why it mattered

UPI and RuPay debit card payments have been exempt from MDR since January 2020. The government made them free to boost digital adoption and reduce friction for merchants and consumers. That zero-MDR approach helped UPI become the dominant payments rail in India. Social chatter often summarises this as UPI handling over eight in 10 digital payment transactions by volume. The policy also shaped how payment apps competed, focusing on scale and user experience rather than pricing. Over time, the conversation shifted from adoption to sustainability of the ecosystem. Industry voices in the public domain now link monetisation to funding for infrastructure, security, and ongoing merchant onboarding. The renewed MDR debate is framed as a response to that funding gap while trying not to disrupt everyday payments.

What the latest MDR debate is actually about

Recent legislative amendments have enabled the introduction of MDR on specified digital payments. The main point circulating on Reddit and finance feeds is that MDR is not expected to apply to all UPI transactions. Multiple references suggest any reintroduced MDR could be limited to transactions above ₹2,000. A second filter being discussed is merchant size, with large merchants in focus. One proposal under examination pegs merchant annual turnover at around ₹1-1.5 crore, alongside the ₹2,000 transaction threshold. This design is being discussed as a way to protect small merchants and routine purchases. It also aligns with the idea that high-value payments are more likely to be commercial in nature. The chatter consistently treats peer-to-peer transfers and small merchant payments as likely to remain free.

Why UPI growth is slowing even as volumes rise

The UPI network is still expanding, but public discussions point to a clear deceleration in the pace. A key explanation shared widely is the larger base effect after years of rapid adoption. NPCI data cited in these conversations places average daily transaction volume at 749 million in May 2026 versus 603 million in May 2025. That is an absolute increase of 146 million transactions, which is close to the previous year’s absolute increase of 150 million. Yet the growth rate looks lower because the base is much larger than it was earlier. The same threads cite average daily transaction growth slowing to 24% in May 2026 versus 58% in May 2023. Social posts also connect the slowdown to a shift in strategy among major payment players. The claim repeated in these discussions is that firms are prioritising profitability over aggressive expansion under the zero MDR regime.

FY26 projections show deceleration, not contraction

Projections circulating online point to high growth continuing, but at a slower rate than FY25. NPCI data referenced in discussions suggests around 240 billion transactions in FY26, translating to nearly 30% year-on-year growth. That compares with 41% expansion recorded in FY25, signalling a slowdown. Another set of projections expects volume growth to decline to 25% in FY26 from 42% in FY25. On the value side, some conversations suggest cooling is sharper than volumes, with value growth cited at about 13% even while volume growth remains around 28%. These are not presented as signs that UPI is shrinking. Instead, they reflect maturity, saturation in key cohorts, and reduced headroom for growth rates seen in early years. The narrative in posts is that the next leg depends on sustainable economics and continued investment.

Recent data: June 2026 points to smaller ticket sizes

NPCI data cited in the public discussion shows UPI processed 22.72 billion transactions in June 2026. This was described as a 23% year-on-year rise compared with June 2025. The total value of transactions touched ₹28.92 lakh crore, a 20% year-on-year growth. A widely discussed trend is the decline in average ticket size. The average transaction value is cited as falling from ₹1,445 in June 2024 to ₹1,273 in June 2026. Posters interpret this as UPI being used more for small, frequent retail purchases. The same trend is linked to the monetisation challenge because lower ticket sizes limit the practical headroom for merchant fees. This data is often used to argue that any MDR design will likely target high-value payments.

Who may face MDR and why the ₹2,000 threshold matters

A recurring point in the chatter is that over 95% of UPI transactions are below ₹2,000. That statistic is used to argue most everyday payments would remain free even if MDR returns. The proposed framework discussed online is “below ₹2,000 free, above ₹2,000 chargeable” for select cases. The rationale is to protect small merchants and daily consumption categories. Discussions also mention that the MDR would apply only to the small share of payments above the threshold, which are described as disproportionately commercial. Examples mentioned include B2B payments, high-value retail, and professional services. Another filter discussed is limiting charges to large merchants, not all merchants. If implemented that way, a large part of the ecosystem would still operate as it does today from the consumer’s perspective.

What fee levels are being floated and why estimates differ

Public references show a wide range of expectations for MDR, reflecting uncertainty. One set of industry discussions, attributed to Mistry of Zeta, suggests MDR of 0.05-0.07% for UPI payments. Another view, attributed to brokerage Bernstein, expects MDR could be 30-40 basis points. The same Bernstein-linked view suggests fees would likely apply only to large merchants and transactions above ₹2,000. Some posts also recall that the earlier regime had capped UPI merchant charges at around 0.30% per transaction. The spread between 0.05-0.07% and 30-40 bps is material, even before factoring in exemptions. Social media debates often mix these possibilities without clarifying merchant category, routing, or settlement costs. The takeaway from the chatter is that MDR, if introduced, is likely to be narrow, tiered, and designed to avoid disrupting small payments.

Sustainability questions: incentives, funding gaps, and expansion plans

The “zero MDR issue” is repeatedly described as a business challenge because payment service providers do not earn a direct processing fee on UPI transactions. High volumes therefore do not automatically translate into high revenue for digital payment companies under the current regime. This is linked to slower expansion in user and merchant metrics in some discussions. One cited example is that PhonePe’s merchant network has been stable at 1.1 crore since FY23. Another commonly cited factor is the gradual reduction in government incentives that historically supported small-value merchant payments on UPI. For FY26, the government has earmarked ₹2,200 crore as subsidy support, but the funds were described in discussions as yet to be disbursed. A Department of Financial Services submission quoted in public threads says the absence of MDR makes the ecosystem financially unsustainable. Separately, a parliamentary committee has recommended introducing tiered charges to address the funding gap and slowing growth.

Merchants pay MDR, but users may still feel it indirectly

A consistent point across posts is that MDR is a merchant-side charge. The Finance Minister has clarified that if introduced, MDR would be borne by merchants, not consumers. However, many discussions also add a caution based on how card payments work globally. The view shared is that merchant costs can reach consumers indirectly through pricing decisions. Some users mention potential outcomes like slightly higher listed prices, reduced discounts, or different payment method incentives. At the same time, the proposed ₹2,000 threshold is positioned as a consumer-friendly guardrail. Since most transactions are below that level, day-to-day payments would likely remain unaffected directly. The merchant impact would be concentrated among larger businesses and higher-value acceptance. That is why the debate is less about whether UPI will stay popular and more about who funds its scale.

What to watch next as policy and data evolve

From a market perspective, the key variable is the final scope of MDR, if any, and how tiering is defined. The discussions suggest two crucial levers: the ₹2,000 per-transaction threshold and the definition of a “large merchant” based on turnover. Another watchpoint is whether peer-to-peer transfers remain free, as expected in most commentary. Investors and analysts also track whether growth normalises around the FY26 projections cited, including the 25-30% range for volume growth. The mix shift to smaller tickets is another theme to monitor, given the drop in average ticket size cited for June 2026. If smaller payments dominate, monetisation may focus even more on the small share of higher-value transactions. Finally, the timing and size of government incentive disbursals matter for near-term economics in the ecosystem. For users, the most practical question remains whether everyday UPI payments stay free, which is what most current chatter expects.