The Lift Line
“Perhaps the next innovation in UPI should therefore be as bold as the first: Not simply how we move money, but how we price the infrastructure that moves it.”
Why This Editorial Matters for Your Exam
Balakrishnan Mahadevan, a former Chief Operating Officer of the National Payments Corporation of India (NPCI) who also worked with the World Bank’s Payment System Development Group, writes in The Indian Express of 1 October 2026. Two weeks before the merchant discount rate (MDR) on UPI begins, he argues against its design, not its existence. We explained the new MDR framework and the Supreme Court challenge in our 29 September deep dive; this column gives the strongest insider case for a different pricing model.
GS Paper 3: Indian economy, banking, payments and digital infrastructure; inclusive growth. GS Paper 2: Government policies and interventions.
Background and Context
What changes on 15 October 2026 (NPCI circular of 15 September).
| Payment | Charge |
|---|---|
| Person-to-person (P2P) | Free |
| Person-to-merchant (P2M) up to Rs 2,000 | Free |
| P2M above Rs 2,000 | 0.4%, capped at Rs 300 |
| Essential services (railways, telecom, fuel and others) | Flat Rs 5 |
| Small merchants receiving up to Rs 1 lakh a month | Exempt |
How India priced its other payment rails (as the author describes).
| System | Type | Pricing |
|---|---|---|
| NEFT | Credit transfer | RBI’s former maximums: Rs 2.50 up to Rs 10,000; Rs 5 up to Rs 1 lakh; Rs 15 for Rs 1-2 lakh; Rs 25 above Rs 2 lakh (the author simplifies this to Rs 5 and Rs 25) |
| RTGS | Credit transfer | Rs 25 for Rs 2-5 lakh; Rs 50 above |
| IMPS (NPCI, real-time) | Credit transfer | 2016: public-sector bank charges above Rs 1,000 capped at NEFT levels |
| Cards | Pull transaction, merchant-initiated | Percentage of value (MDR) |
The Analysis
1. UPI is a push, not a pull. In a credit transfer, the payer instructs the bank to send money. In a card payment, the merchant pulls money from the cardholder’s account or credit line after authorisation. Different mechanics justify different pricing.
2. India has its own pricing tradition. Every Indian credit-transfer system has used simple fixed or slab charges with low maximums. Why should UPI, built to escape card economics, adopt a percentage model?
3. The cost is small. NPCI’s cost was about 9.8 paise per transaction across its payment systems in 2024-25, on an IIM Bangalore analysis, and about 5 paise on the author’s narrower operational basis excluding marketing. The wider ecosystem has other costs, but how much revenue is genuinely needed for sustainability?
4. Purpose over revenue. UPI is digital public infrastructure (DPI): a small merchant accepting Rs 50 or a migrant sending money home represents participation in the formal economy, not just a transaction.
Data and Institutions Vault
Prelims-grade facts:
UPI and NPCI:
- NPCI: set up in 2008 by the RBI and the Indian Banks’ Association; a not-for-profit company.
- UPI launched in 2016; NPCI processed about 230.2 billion transactions across systems in 2024-25 (IIM Bangalore analysis).
- Background: zero MDR on UPI and RuPay debit cards began on 1 January 2020.
The new framework:
- MDR 0.4% on P2M payments above Rs 2,000, cap Rs 300, from 15 October 2026.
- Legal basis: Section 10A, Payment and Settlement Systems Act, 2007, now protecting only notified modes.
⚠️ Watch the trap: The MDR is paid by the merchant, not the customer; it is shared among the acquiring bank, the issuing bank, app providers and the network.
The Debate
For the author’s view. Percentage pricing imports card-network logic into a public credit-transfer rail; slab pricing would recover costs while keeping UPI cheap and inclusive.
The complications. Banks and apps bear costs well above NPCI’s; zero MDR depended on government incentives that have shrunk; the new framework already exempts P2P, payments up to Rs 2,000 and small merchants; and a cap of Rs 300 limits the charge on large payments.
The balanced verdict. The debate is about the shape of the fee. Publishing ecosystem-wide cost data and reviewing the framework after a year would let evidence decide between capped percentages and slabs.
How to Think About This
Price public infrastructure by its purpose. For a public good, ask what the price is for: cost recovery, investment, or rationing. Then choose a structure (flat, slab, percentage) that serves that aim without excluding the users the infrastructure exists for.
Diagram-in-Words
Takeaway Box
- New fee: 0.4% MDR above Rs 2,000, cap Rs 300, from 15 October 2026.
- Argument: UPI is a credit transfer; price it like NEFT/RTGS/IMPS slabs.
- Cost: about 9.8 paise per transaction (5 paise excluding marketing).
- Purpose: DPI for participation, not a revenue pool.
- Counter: ecosystem costs exceed NPCI’s; exemptions already protect small users.
Sources: The Indian Express, NPCI, RBI
Source: UPI Was an Innovation; Its Fee Should Be One Too: The Case for Slab Pricing Instead of a 0.4% MDR — Ujiyari.com | Free UPSC & State PCS Editorial Analysis
