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The Unified Payments Interface completed ten years in August 2026 — it was piloted on 11 April 2016 by RBI Governor Raghuram Rajan with 21 member banks and opened to the public on 25 August 2016.
UPI now carries about 86% of India's non-cash digital transactions; the country recorded 28,174 crore digital transactions in 2025-26, with over 55 crore users and 703 participating entities on the UPI network.
July 2026 was UPI's biggest month ever: 2,366 crore (23.66 billion) transactions worth Rs 29.88 lakh crore, up 22% in volume year-on-year.
Parliament cleared the Taxation and Other Laws (Amendment) Bill, 2026 on 10 August 2026, rewriting Section 10A of the Payment and Settlement Systems Act, 2007 — an enabling provision that ends the blanket statutory bar on a Merchant Discount Rate, though no charge has been imposed.
Running the ecosystem costs the industry roughly Rs 20,000 crore a year; the payments industry wants an MDR of 0.3-0.6% only on transactions above Rs 2,000 to large merchants, which are 4% of merchant payments by number but 68% by value.
RBI's payment system vision documents identify IMPS as the base for mobile person-to-person and person-to-merchant transfers; an average Indian then made about six non-cash transactions a year. NPCI and the Indian Banks' Association begin building UPI.
UPI is piloted in Mumbai by RBI Governor Raghuram Rajan with 21 member banks.
UPI goes live for the public as banks release UPI-enabled apps.
Demonetisation gives digital payments a push, but adoption stays slow — monthly UPI value stays under Rs 10,000 crore until December 2017 and takes another year to cross Rs 1 lakh crore a month.
The High-Level Committee on Deepening of Digital Payments, chaired by Nandan Nilekani, recommends removing MDR for customers and small merchants, with the government meeting the cost instead.
Zero-MDR becomes statutory: Section 10A of the PSS Act, 2007 read with Section 269SU of the Income-tax Act, 1961 bars any charge on payments made through prescribed electronic modes — notified by the CBDT as UPI, UPI QR and RuPay debit cards.
The COVID-19 pandemic drives contactless QR payments; the government begins an incentive scheme subsidising UPI and RuPay transactions up to Rs 2,000, capped at 0.15% of value.
NPCI proposes a 30% cap on any single third-party app's share of UPI volume; the deadline is pushed from December 2022 to December 2024 and again, in December 2024, to 31 December 2026.
The Lok Sabha passes the Taxation and Other Laws (Amendment) Bill, 2026.
The Rajya Sabha returns the Money Bill, completing Parliament's approval. Section 10A is rewritten so that the Central Government may notify which electronic modes stay charge-free, instead of the modes being fixed by reference to Section 269SU.
MDR is the fee a merchant pays, as a percentage of the transaction, for accepting a digital payment. It is not charged to the customer. The amount is split among the bank that issued the customer's account or card, the bank that acquired the merchant, the payment app and the network operator, and it is what funds servers, settlement, fraud monitoring and dispute handling. Credit and debit cards have always carried an MDR; UPI and RuPay debit cards have carried none since 1 January 2020, with the government instead paying an incentive on small-value transactions. The industry argues this leaves the roughly Rs 20,000 crore annual cost of running UPI largely unrecovered.
Simple Analogy: A toll road still costs money to light, patrol and resurface even when the barrier is lifted. Someone pays either way — the question is whether it is the traveller, the trucking company or the exchequer.
| Feature | Regime since 1 January 2020 | What the payments industry proposes |
|---|---|---|
| Charge on UPI merchant payments | Nil on all UPI and RuPay debit card transactions | 0.3-0.6% only above Rs 2,000, and only for large merchants |
| Person-to-person transfers | Free | Remain free |
| Small merchants | Free | Remain free |
| Who funds the system | Government incentive on transactions up to Rs 2,000, capped at 0.15% of value, shared between banks and payment providers | Large merchants, who benefit most from the volumes |
| Coverage of the proposed fee | Not applicable | About 4% of person-to-merchant transactions by number, but about 68% by value |
| Legal position | Section 10A of the PSS Act barred any charge on the prescribed modes | The August 2026 amendment lets the Centre notify which modes stay charge-free; a charge still needs a separate decision |
Umbrella organisation for retail payments in India; builds and operates UPI, IMPS, RuPay, NACH, FASTag, BHIM and AePS. A not-for-profit company under Section 8 of the Companies Act.
Regulator of payment systems under the Payment and Settlement Systems Act, 2007; authorises payment system operators and issues the Payment Systems Vision documents that set direction for UPI.
Wholly owned international arm of NPCI; takes UPI and RuPay abroad through tie-ups with foreign banks, networks and central banks. UPI acceptance is live in nine countries — Bhutan, Nepal, Sri Lanka, Singapore, UAE, Qatar, Mauritius, France and Cambodia (added in June 2026).
UPI is the payments layer of India Stack, alongside Aadhaar (identity) and DigiLocker/Account Aggregator (data). Together they are cited as the template for Digital Public Infrastructure that India has promoted in G20 and BRICS forums.
The Taxation and Other Laws (Amendment) Bill, 2026 was a Money Bill under Article 110. The Rajya Sabha could only make recommendations and had to return it within 14 days; the Lok Sabha may accept or reject them.
The shift from cash to UPI changes currency-in-circulation trends and the demand for small-denomination notes, which the RBI tracks alongside its e-rupee (CBDC) pilots for retail payments.
The 30% third-party app cap is a structural remedy applied ex ante, before any abuse is proved — a contrast with the Competition Act's usual ex post scrutiny of dominance.
GS Paper III > Indian Economy — mobilisation of resources, banking, digital financial inclusion; GS Paper II > Government policies and e-governance
General Awareness — payment systems, NPCI products, RBI regulation, MDR
General Awareness — economy and current affairs
General Awareness — economy and current affairs
Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'?
Answer: Mobile wallets will not be necessary for online payments.
Consider the following statements: 1. National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country. 2. NPCI has launched RuPay, a card payment scheme. Which of the statements given above is/are correct?
Answer: Both 1 and 2
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news?
Answer: The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
With reference to digital payments, consider the following statements: 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account. 2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication. Which of the statements given above is/are correct?
Answer: 1 only
The fee a merchant pays on a digital transaction, shared among the issuing bank, acquiring bank, payment app and network. Never charged to the customer.
The provision that barred banks and system providers from imposing any charge on payments made through prescribed electronic modes. Amended in August 2026 so the Centre may notify which modes stay charge-free.
Requires businesses with turnover above Rs 50 crore to offer prescribed electronic payment modes — notified by the CBDT in December 2019 as UPI, UPI QR and RuPay debit cards.
The UPI ID (for example, name@bank) that lets a user receive money without disclosing an account number or IFSC code.
A non-bank app such as PhonePe, Google Pay or Paytm that offers UPI services through a sponsor bank. Subject to NPCI's proposed 30% volume cap.
A Bill under Article 110 dealing only with specified financial matters. The Rajya Sabha may only recommend changes and must return it within 14 days.