Government may phase out UPI subsidies as MDR revenue emerges

The government is considering ending UPI and RuPay incentive subsidies in FY27, with transaction-linked MDR revenue on larger payments expected to support banks and payment firms. The shift could alter digital-payment acceptance economics for small retailers.

— Source publishedTue, 22 Sept, 2026, 00:56 IST·First seen Tue, 22 Sept, 2026, 01:04 IST·Source ET Small Business

What happened

Unified Payments Interface (UPI) · The government may phase out UPI subsidies as MDR on larger transactions creates transaction-linked revenue for banks and

Key facts

  • ₹2,000 crore budgeted for UPI and RuPay incentives in FY27
  • No fresh subsidy paid for transactions since April 2025
  • UPI incentive disbursements fell to ₹1,046 crore in FY25 from ₹3,631 crore in FY24
  • Zero MDR on UPI and RuPay debit-card transactions began in January 2020

Why this matters

Prioritize partnerships or acquisitions that add merchant acquiring, payment orchestration, and value-added services, as MDR-led economics make scaled acceptance networks more strategically valuable.

What to watch

  • FY27 Union Budget and Ministry of Finance language on UPI/RuPay incentive allocation, eligibility, and payout timing.
  • NPCI, RBI, and payments-industry consultation papers on MDR for UPI, RuPay debit, RuPay credit, P2M, and transaction-value thresholds.
  • Acquirer or PSP announcements of QR maintenance fees, onboarding fees, settlement charges, device rentals, or revised merchant pricing.
  • UPI transaction growth, average ticket size, active merchant QR counts, and bank/PSP profitability trends after subsidy disbursements cease.
  • Merchant associations lobbying for zero MDR or reporting QR acceptance pullbacks, surcharge behavior, or cash-steering.
  • Model payment acceptance cost by ticket size, payment mix, and merchant segment; stress-test zero, low, and tiered MDR outcomes for FY27.
  • Negotiate acquiring contracts now for capped MDR, transparent QR/device fees, settlement SLAs, and protections against new low-volume merchant charges.
  • Increase checkout routing flexibility across UPI, cards, wallets, cash, and pay-by-bank options; avoid dependence on a single PSP or acquirer.
  • Use loyalty offers and targeted incentives to preserve UPI usage where MDR emerges, focusing on higher-margin baskets rather than blanket discounts.
  • Prepare merchant communications explaining any checkout/payment-policy changes to reduce customer friction and avoid abrupt cash-only behavior.