Is US Criticism Behind India’s Move to Amend the Law Governing UPI?
India’s proposed amendment to the Payment and Settlement Systems Act enables future changes to UPI’s zero-MDR framework, coinciding with U.S. criticism of UPI and RuPay. While merchant charges are under consideration to fund UPI’s sustainability, experts caution that policy decisions should serve India’s interests, not respond to American trade pressure.
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The government’s move to amend the law governing UPI has come significantly at a time when the U.S. has criticised India’s UPI and RuPay policies for allegedly disadvantaging American payment companies. While the proposed legislation does not immediately impose merchant charges, it gives the Centre the power to do so later.
On Aug. 4, Finance Minister Nirmala Sitharaman introduced legislation in the Lok Sabha that would amend Section 10A of the Payment and Settlement Systems Act, 2007 and could change how digital transactions are priced.
At present, banks and payment-system providers cannot directly or indirectly charge users for prescribed payment methods, including UPI and RuPay debit cards. The Bill proposes allowing the Central Government to decide, through notification, which electronic payment modes or transactions must remain free.
The Bill itself neither introduces a merchant discount rate (MDR) nor specifies a fee. However, it creates the legal authority required for the government to modify the zero-MDR framework later.
Criticism by the USTR
This legislative change comes against the backdrop of U.S. criticism of domestic digital-payment systems. The U.S. Trade Representative’s 2026 National Trade Estimate Report on Foreign Trade Barriers criticised both Brazil’s Pix and India’s UPI and RuPay framework.
The report argued that Brazil’s central bank created, owns, operates and regulates Pix, giving the system preferential treatment over American payment providers. Following a Section 301 investigation, the United States imposed an additional 25% tariff on most Brazilian goods in July 2026. Electronic payments were among several reasons cited, alongside digital trade, intellectual property, ethanol market access, anti-corruption enforcement and deforestation.
Brazil refused to change Pix. Its government defended free individual transactions, low merchant costs, central-bank operation and compulsory participation by large financial institutions. President Luiz Inácio Lula da Silva publicly supported the system, while Brazilian officials said U.S. objections were intended to protect the fees and market share of American card companies.
In India’s case, USTR argues that payment policies favour domestic providers, particularly RuPay. Since UPI’s launch, Visa and Mastercard have lost potential business as consumers increasingly use free UPI payments instead of cards. They also object to zero transaction charges for UPI and RuPay, government promotion of RuPay, and RuPay’s early access to credit-card payments through UPI. This has strengthened RuPay and reduced the fee income of U.S. card companies.
Visa and Mastercard operate on a model under which banks, payment processors and card networks earn fees from merchant transactions. A widely available, interoperable and zero-MDR platform such as UPI limits this revenue pool. RuPay further challenges their position by providing an Indian card network that can be integrated closely with domestic policy objectives.
The U.S. has also objected to NPCI’s proposed 30% transaction-volume cap for each third-party payment application. Google Pay and Walmart-controlled PhonePe together process more than 80% of UPI transactions. NPCI says the restriction is intended to reduce market concentration and systemic risk. Its implementation has been deferred until December 2026. American companies have additionally opposed India’s data-localisation rules requiring payment-system data to be stored in the country.
Two Charging Models Under Consideration
Indian policymakers are reportedly considering two possible charging models. Under the first, UPI merchant payments above Rs 2,000 could attract an MDR of around 0.25-0.5%, while smaller transactions and person-to-person transfers would remain free. Under the second, charges could apply only to payments received by merchants with annual turnover exceeding Rs 1.5 crore. The merchant would formally bear the fee, but businesses could recover the cost by raising prices, imposing convenience charges or encouraging customers to pay in cash.
Even the Reserve Bank of India Governor Sanjay Malhotra on Wednesday, while interacting with the media after the monetary policy announcement, said that “someone will have to pay the cost” of UPI transactions. The cost is currently being borne by banks and the National Payment Corporation of India.
UPI has become an essential national digital infrastructure. In July 2026, it processed 23.6 billion transactions worth Rs 29.9 trillion, making it one of the world’s largest real-time payment systems. In FY 2025-26 there were some 241 billion UPI transactions. Unofficial estimates show that the UPI platform currently costs about Rs 0.4-1 per transaction to operate and maintain. Even at the cost of Re 1 per transaction, total cost comes around Rs 24,000 crore, which is just 8% of Rs 2.9 lakh crore, the amount RBI transferred to the Union government as surplus for 2025-26.
Experts argue that India should not introduce MDR simply to address U.S. trade complaints or protect the profits of Visa, Mastercard and other foreign payment companies. Any decision on charges should be based on the cost of running UPI and ensuring its long-term sustainability.
Ajay Srivastava of think tank GTRI says, “The warning from Brazil is clear: the United States has imposed 25% tariffs on Brazilian imports under a Section 301 action that, among other complaints, targets Brazil’s public instant-payment system, Pix, for allegedly disadvantaging American payment companies.”
“Washington’s demands have no finishing line - each concession only invites another. India must not rewrite its UPI policies under U.S. pressure. It must defend competition, policy autonomy and the long-term sustainability of its payments ecosystem,” he said.
