BANGALORE, India — Following the passage of the Taxation and Other Laws (Amendment) Bill, 2026, the payments industry in India is actively debating the future of the Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions.
The legislative amendment establishes a legal framework allowing the existing zero-MDR structure to be modified for specified digital payment transactions. However, the Government has clarified that no immediate charges have been introduced. Person-to-person payments and consumer transactions remain free, small merchants continue to be protected, and a final MDR framework has not yet been announced.
Industry participants point out that beyond the policy decision of whether MDR should return, the primary challenge lies in the practical execution of any selective framework. If future regulations differentiate between specific transactions or merchant segments, acquiring institutions and banks will require accurate and current data regarding the businesses accepting payments.
Inaccurate merchant identities, outdated business details, or incorrect classifications could potentially lead to inconsistent policy enforcement and administrative disputes. Ajay Pandey, CEO of payments and onboarding infrastructure provider CARD91, noted that applying policy consistently to the correct merchant poses a significant implementation challenge.
"Whatever parameters are eventually adopted, banks and acquirers will need verified and explainable information about the businesses accepting payments. The quality of merchant data will directly influence how fairly any differentiated framework operates," Pandey stated.
The payments ecosystem faces four critical operational questions regarding merchant data: whether merchant identities are properly verified beyond initial document collection, whether declared activities align with assigned Merchant Category Codes, how business changes over time are monitored without adding friction, and what redress mechanisms exist when classification systems fail.
In July 2026 alone, UPI processed 23.66 billion transactions valued at approximately ₹29.88 lakh crore. Financial institutions and businesses face substantial operational complexity at this scale if merchant records contain inaccuracies. Maintaining reliable information supports appropriate transaction limits, effective fraud controls, and regulatory compliance.
A.G. Ramakrishna, Chief Product Officer at CARD91, emphasized that technology should support institutional decision-making rather than independently determining MDR applicability. "The goal should not be to add more friction to merchant acceptance. It should be to ensure that legitimate businesses are treated consistently while financial institutions have the information required to manage risk and implement policy responsibly," Ramakrishna said.
CARD91, a Bangalore-headquartered payments and onboarding risk infrastructure provider, previously introduced AI-led merchant verification capabilities in July 2025 to assist regulated institutions with business classification and verification.
"As the discussion around UPI MDR evolves following recent legislative developments, the core challenge for the financial ecosystem will not simply be setting pricing rules, but ensuring precise operational execution. At the current scale of billions of monthly transactions, banks and fintech infrastructure providers must prioritize robust merchant verification and classification systems. Accurate data is essential to protect small businesses, maintain compliance, and preserve the accessibility that drives India's digital payments adoption." — Dr. Shishir Gupta, Founder & CEO, StartupLanes
