UPI MDR should be cut from 0.4% to 0.08%: IIT-Bombay report proposes new fee structure
The report also argues that banks should use a portion of their earnings from current and savings account deposits to fund the digital payments ecosystem instead of relying on MDR revenue
- Oct 11, 2026,
- Updated Oct 11, 2026 8:39 PM IST
An IIT-Bombay report has recommended cutting the merchant discount rate (MDR) on UPI transactions to 0.08% from 0.40%. The report also argues that banks should use a portion of their earnings from current and savings account deposits to fund the digital payments ecosystem instead of relying on MDR revenue.
The report was written by Ashish Das, a professor in IIT-Bombay’s Department of Mathematics, and Pragya Das, a former RBI official.
The UPI Steering Committee fixed the MDR at 0.40% for merchant transactions above Rs 2,000 on September 15, with the framework scheduled to take effect from October 15, 2026.
However, the trade bodies have requested the government to roll back the charge.
How the report wants UPI fees split
The report recommends an MDR of 0.06% for third-party application providers (TPAPs), such as PhonePe and Google Pay, against the 0.08% proposed by NPCI. It suggests retaining a 0.02% share for payment service providers (PSPs), which are mostly banks.
The study argues that banks should give up their share of MDR revenue because they already benefit from the low interest rates paid on current and savings account deposits, known as CASA deposits.
Banks booked more than Rs 4.85 lakh crore in net interest margin through CASA deposits in FY26, which the report describes as “large and disproportionate” compensation for providing basic banking services.
"Banks earn substantial interest margins from the CASA depositors. They should use the same towards running and improving the UPI ecosystem and not rely on MDR revenue sharing from offline transactions," the report said.
It suggested that banks set aside about 3% of the funds effectively sacrificed by CASA depositors - around Rs 15,000 crore - to run and improve UPI.
Banks should treat UPI as a necessary service
The report also called on the RBI and the government to direct banks to make UPI a necessary service for remaining in the banking business, much as core banking systems (CBS) became essential to bank operations.
It questioned the reasonableness of a Rs 300 transaction charge cap for electronic person-to-merchant payments of Rs 75,000 and above.
Such a charge, the report said, "raises a vital question of reasonableness of fixing such a high cap as service charge". It also cited RBI regulations that require service charges to be in line with the average cost of providing the service.
The report recommended introducing a "digital payment fee" for online merchant transactions made when purchasing goods or services from e-commerce companies.
It also called for a reduction in credit card MDR.
The authors noted that many merchants covered by the UPI MDR framework already levy charges on transactions above Rs 2,000 and accept credit cards. Lower credit card MDR, they argued, could address concerns that credit card users are placing an unfair burden on UPI users making person-to-merchant payments.
An IIT-Bombay report has recommended cutting the merchant discount rate (MDR) on UPI transactions to 0.08% from 0.40%. The report also argues that banks should use a portion of their earnings from current and savings account deposits to fund the digital payments ecosystem instead of relying on MDR revenue.
The report was written by Ashish Das, a professor in IIT-Bombay’s Department of Mathematics, and Pragya Das, a former RBI official.
The UPI Steering Committee fixed the MDR at 0.40% for merchant transactions above Rs 2,000 on September 15, with the framework scheduled to take effect from October 15, 2026.
However, the trade bodies have requested the government to roll back the charge.
How the report wants UPI fees split
The report recommends an MDR of 0.06% for third-party application providers (TPAPs), such as PhonePe and Google Pay, against the 0.08% proposed by NPCI. It suggests retaining a 0.02% share for payment service providers (PSPs), which are mostly banks.
The study argues that banks should give up their share of MDR revenue because they already benefit from the low interest rates paid on current and savings account deposits, known as CASA deposits.
Banks booked more than Rs 4.85 lakh crore in net interest margin through CASA deposits in FY26, which the report describes as “large and disproportionate” compensation for providing basic banking services.
"Banks earn substantial interest margins from the CASA depositors. They should use the same towards running and improving the UPI ecosystem and not rely on MDR revenue sharing from offline transactions," the report said.
It suggested that banks set aside about 3% of the funds effectively sacrificed by CASA depositors - around Rs 15,000 crore - to run and improve UPI.
Banks should treat UPI as a necessary service
The report also called on the RBI and the government to direct banks to make UPI a necessary service for remaining in the banking business, much as core banking systems (CBS) became essential to bank operations.
It questioned the reasonableness of a Rs 300 transaction charge cap for electronic person-to-merchant payments of Rs 75,000 and above.
Such a charge, the report said, "raises a vital question of reasonableness of fixing such a high cap as service charge". It also cited RBI regulations that require service charges to be in line with the average cost of providing the service.
The report recommended introducing a "digital payment fee" for online merchant transactions made when purchasing goods or services from e-commerce companies.
It also called for a reduction in credit card MDR.
The authors noted that many merchants covered by the UPI MDR framework already levy charges on transactions above Rs 2,000 and accept credit cards. Lower credit card MDR, they argued, could address concerns that credit card users are placing an unfair burden on UPI users making person-to-merchant payments.