The Union Finance Minister Smt. Nirmala Sitharaman announced union budget 2026 on 1st February but the payments industry seems not be happy with the budget.
On February 1, Finance Minister Nirmala Sitharaman announced an allocation of ₹2,000 crore as incentive expenditure for UPI and RuPay debit card transactions.
The payment industry has expressed disappointment over this small subsidy allocation for Unified Payments Interface (UPI) and RuPay debit cards.
The Payment Council of India (PCI), which represents payment and fintech companies, strongly criticised the budget decision.
Industry representatives said that without the Merchant Discount Rate (MDR) and with low subsidies, the growth of digital payments could slow down sharply.
Digital transactions involve a fee known as the Merchant Discount Rate (MDR). Banks charge this fee to merchants for processing digital payments. Before 2020, UPI MDR was 30 basis points. The government later waived this charge. One basis point equals one-hundredth of a percentage point.
As reported by money control, a senior executive from a payment company said that UPI transaction value growth has already fallen to 13 percent. He added that expanding UPI in rural areas will need four to five times more investment. Private companies are unlikely to invest such large amounts without government support, he said.
Payment Council of India (PCI) said that keeping UPI transactions at zero MDR while allocating only ₹2,000 crore to process around 30 crore transactions every day for free will harm the entire digital payments ecosystem. It warned that this could make it difficult to bring the next 30 crore Indians into digital payments and expand infrastructure in rural areas.
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To encourage digital payments, the government has mandated that UPI transactions remain free for users. In return, it compensates payment companies for the costs they incur in processing these transactions.
PCI said it was expecting government incentives of more than ₹10,000 crore. The industry body pointed out that rising deployment costs, servicing expenses, and increased RBI compliance requirements have added significant financial pressure on fintech companies.
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Most payment companies are not demanding subsidies. Instead, they are asking for the return of MDR on high-value merchant payments, which could help cover the cost of smaller transactions.
PCI said the government should allow a low, regulated MDR of 30 basis points on UPI person-to-merchant (P2M) transactions for merchants with an annual turnover of more than ₹20 lakh.
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UPI is India’s most widely used digital payment system. It accounts for around 85 percent of all online transactions in the country. Transactions through the popular Unified Payments Interface (UPI) touched a record Rs 28.33 lakh crore and 21.70 billion in value and volume terms, respectively, in January 2026, according to data released by the National Payments Corporation of India (NPCI). The value of transactions was at Rs 27.97 lakh crore in December 2025.
India has about six crore merchants accepting digital payments. Around 90 percent of them are classified as small merchants, with annual turnover of ₹20 lakh or less, as per RBI norms. About 50 lakh merchants fall under the large enterprise category.
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PCI said allowing MDR for large RuPay debit card and UPI merchants would create a sustainable revenue model for service providers. It would also not affect small merchants, as large merchants already pay MDR on other payment systems.
Payment companies believe that UPI will remain popular with both consumers and merchants even if MDR is introduced. Most other digital payment systems charge MDR between 75 and 150 basis points.
