India's Finance Ministry has clarified that the recently introduced 0.4% Merchant Discount Rate (MDR) on certain Unified Payments Interface (UPI) transactions is not influenced by the US and reaffirms that only RuPay credit cards are allowed for credit transactions on UPI, maintaining a domestic-first payment policy.
- MDR of 0.4% applies to UPI payments above Rs 2,000 from October 15.
- Only RuPay credit cards permitted for credit transactions on UPI.
- MDR introduced to support smaller companies and safeguard India’s payment sovereignty.
What happened
On September 15, 2026, the National Payments Corporation of India (NPCI) issued a circular introducing a 0.4% Merchant Discount Rate (MDR) on certain high-value UPI transactions above Rs 2,000. The MDR, payable by merchants and capped at Rs 300 for large transactions, aims to create a sustainable revenue model to support the digital payments ecosystem.
The Department of Financial Services (DFS) quickly responded to concerns following a US Trade Representative (USTR) report that criticized the exclusion of foreign credit cards from UPI credit transactions. The DFS clarified that the circular does not allow credit transactions on UPI using any credit card other than RuPay, reaffirming that this is part of India's existing policy rather than a move influenced by external pressure.
Why it matters
This confirmation dispels allegations suggesting India imposed the MDR or restricted foreign credit card access to UPI due to US government pressure. Instead, the policy reflects India's strategic decision to promote RuPay credit cards to strengthen domestic payment alternatives and enhance payment sovereignty.
Introducing MDR supports smaller third-party application providers by establishing a revenue model to help them grow within the UPI ecosystem. The move is designed to foster competition domestically, enabling more companies to participate effectively, while exempting everyday low-value digital payments and small merchants to balance inclusivity.
What to watch next
Market observers should track how the introduction of MDR affects the growth and market share of RuPay credit cards versus other payment options, especially in the credit transaction segment on UPI. The development could solidify RuPay’s position as the preferred credit card for digital payments in India.
Furthermore, the impact on smaller fintech players and third-party apps will be key, as the sustainable revenue model could either boost innovation and competition or introduce challenges for adoption. Monitoring government responses to any pushback from foreign payment providers will also be important to understand India’s payment ecosystem diplomacy.