India Moves to Revise UPI Zero Merchant Discount Rate

India’s new legislation provides the framework for a possible overhaul of the country’s zero‑merchant‑discount‑rate (ZMDR) policy, a scheme that has allowed merchants to accept Unified Payments Interface (UPI) transactions without paying fees since 2020. The bill, drafted by the Ministry of Finance and presented to Parliament, outlines a phased approach that could introduce a modest fee structure for UPI payments, while preserving the core benefits of the digital payment ecosystem.

Under the current ZMDR regime, merchants have enjoyed free access to UPI, which has driven widespread adoption of the platform across retail, e‑commerce, and informal sectors. The proposed changes aim to balance the need for sustainable revenue for payment service providers with the goal of maintaining low transaction costs for consumers. The legislation specifies that any new fee model would be subject to regulatory review and could be adjusted based on market dynamics and consumer impact assessments.

If enacted, the overhaul could reshape the UPI landscape by creating a more balanced financial ecosystem for banks, payment aggregators, and merchants. The government has indicated that it will monitor the transition closely to ensure that the benefits of digital payments—speed, convenience, and financial inclusion—are not compromised while addressing the fiscal sustainability of the payment infrastructure.