In mid‑September 2026 I replied on X about the economics and policy of India’s Unified Payments Interface (UPI). I argued that banks should bear a flat fee, that a subsidy fund should be created from a slice of MDR fees, and that merchants should be shielded from MDR costs wherever possible.
UPI‑enabled merchants generate 1900 cr profit, which is paid by banks that capture extra float and save cash‑handling costs.
Only transactions > 2000 ₹ attract MDR; splitting a payment into smaller installments to stay below this threshold is legal and used by very small merchants.
For large merchants the UPI MDR rate is 0.02 % + GST (not the erroneous 300 %).
A ₹2,360 transaction (₹2,000 + GST) incurs a fee of 9.44 ₹, i.e. 0.40 % of the total or 0.472 % of the base amount.
I propose earmarking 5 % of collected MDR fees to create a fund that makes UPI free for smaller merchants and in smaller towns.
My decisions flow from the observation that banks profit from float, so shifting a flat fee to them reduces the cost burden on merchants, while a modest 5 % fee‑based subsidy aligns with Parliament’s zero‑MDR law.