Govt rejects claims that UPI MDR was introduced under external pressure

The government on Thursday rejected allegations that the introduction of Merchant Discount Rate (MDR) on select UPI transactions was driven by external pressure, calling the claim “patently false and misleading”.

The Finance Ministry’s Department of Financial Services issued the clarification while referring to concerns raised in the US Trade Representative’s (USTR) 2026 National Trade Estimate report. The USTR report does raise concerns about the ability of US electronic payment service providers to participate in the UPI ecosystem on what it considers a level playing field with RuPay.

The Finance Ministry also released a copy of the USTR report cited in the allegations.

According to the government, the USTR report highlights two issues related to India's digital payments ecosystem. The first concerns the participation of US electronic payment service providers in UPI, including credit transactions, where the government said existing policy permits only RuPay credit cards to be used for credit transactions on UPI.

The ministry said the NPCI circular issued on September 15, 2026, maintains this policy and is intended to promote RuPay as a domestic credit-card option.

The second issue concerns NPCI's 30 per cent market-share limit for third-party application providers. The cap was announced in November 2020, with its enforcement now scheduled for December 2026. The USTR has also documented this market-share restriction as a concern for US payment-service providers.

The government said the market-share rule could not be effectively implemented earlier because smaller companies lacked a sustainable revenue model that would allow them to compete with the dominant players in the UPI ecosystem.

It argued that introducing MDR on select high-value transactions would create an additional revenue stream for smaller domestic companies and help them expand their presence in the digital payments market.

“Contrary to misleading claims made that MDR has been introduced under external press