In its latest move to promote wider adoption of the Unified Payments Interface (UPI) instant payment system, the Indian government is considering offering direct discounts to consumers who use it.
Under the proposed plan, UPI users would receive an automatic 2% discount compared to the credit card price, effectively rewarding those who choose instant digital payments.
UPI already offers consumers an edge over credit card payments. Currently, when a credit card is used, merchants pay a Merchant Discount Rate (MDR) of two to three rupees for every 100 rupees spent. As with swipe fees in the U.S., this cost is sometimes absorbed by merchants but can also be passed on to customers. The government is reportedly exploring ways to more directly pass these cost savings to consumers who opt for UPI payments.
Before finalizing the decision, the consumer affairs ministry plans to consult e-commerce platforms, payment service providers, the National Payments Corporation of India (NPCI), Department of Financial Services (DFS), and various consumer rights groups. The final plan is expected to be ready following a stakeholder meeting next month.
A Reversal of Earlier Costs
Prior to 2022, merchants in India were required to pay a MDR of less than 1% of the transaction amount to the processing bank, even for UPI payments. To encourage digital payments, the government eliminated these charges. This move helped boost UPI adoption, making it the most widely used payment method in the country, but it also removed a key revenue stream for banks and payment service providers.
That’s not the only way in which the government is working to reduce costs for consumers. According to India Today, major retail merchants process more than 50% of their transactions through credit cards. Earlier this year, the Indian government announced plans to introduce a tiered pricing system for such payments, where larger businesses would pay higher charges than smaller ones.
Faster as Well as Cheaper
India’s government is also taking steps to accelerate UPI transactions. Starting June 16, the NPCI has mandated that transaction times for UPI be reduced from the current 30 seconds to just 15 seconds.
Even before these changes, UPI has remained the dominant method for digital payments in India. In FY25, UPI was used in 185.85 billion transactions—an increase of about 42% over the previous year. The total value of UPI payments reached 260 trillion rupees during that period.
