New Delhi: The Finance Ministry on Thursday dismissed allegations that US pressure influenced the decision to levy a 0.4 per cent Merchant Discount Rate (MDR) on select UPI payments, saying the latest NPCI guidelines do not offer any advantage to international credit cards over RuPay on the UPI platform.
The Department of Financial Services (DFS) issued the clarification in response to observations in the US Trade Representative's (USTR) 2026 report on the inability of US electronic payment service providers to participate in the UPI ecosystem, including credit transactions on UPI, on a level playing field with RuPay.
"The NPCI circular of September 15, 2026, does not allow credit transactions on UPI by any other credit card other than the RuPay credit card. There is a clear policy of only allowing the RuPay credit card on UPI to enable the RuPay credit card to become the preferred choice of credit card amongst users in India," the DFS said in a post on X.
"The allegation that MDR has been introduced under any external influence is patently false and misleading," it added.
The rejection comes amid allegations by some Opposition parties, including the Congress, that the government had succumbed to US pressure in deciding to impose a 0.4 per cent MDR on UPI transactions above Rs 2,000.
The Finance Ministry's clarification indicates that the NPCI decision is part of an existing policy framework that permits only RuPay credit cards to be linked to UPI for credit transactions, rather than a measure aimed at providing access to foreign payment service providers.
The NPCI, which operates the UPI platform, issued a circular on September 15 providing for MDR on certain UPI transactions, with the move aimed at creating a sustainable revenue framework for the digital payments ecosystem.
On the market share ceiling, NPCI said it mandated a market share limitation of 30 per cent for third-party application providers in November 2020. However, this mandate could not be implemented because companies other than the market leaders could not compete in the absence of a self-sustaining revenue model.
"Introduction of MDR on select high-value transactions will provide a self-sustaining revenue model to smaller companies to compete for a higher share in the UPI ecosystem. Thus, the introduction of MDR has been done with the intention of allowing more domestic companies to expand their operations," it said.
Contrary to misleading claims that MDR was introduced under external pressure, NPCI said the introduction of MDR on select high-value transactions will enable more domestic companies to operate under UPI.
Thus, the introduction of MDR is a step in protecting India's sovereignty in the electronic payment ecosystem.
It further emphasised that the government has promoted RuPay credit and debit cards to show that people have a strong domestic alternative.
As RuPay credit cards continue to grow, the debit card has been kept free of MDR, it added.
From October 15, a 0.4 per cent MDR will apply to person-to-merchant UPI payments above Rs 2,000.
The charge will be paid by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more. Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free.
Essential services - railways, telecom, fuel and insurance - will attract a flat Rs 5 fee per transaction above Rs 2,000.
Capital markets transactions, including mutual funds and stockbroking, will attract a lower 0.02 per cent rate, also capped at Rs 300.
Small merchants collecting up to Rs 1 lakh a month via UPI QR codes will remain fully exempt from any new charge. Officials say the carve-out shields about 96 per cent of all merchant transactions.
UPI QR payments to merchants in rural and semi-urban areas will also remain free. Five per cent of MDR collections will go into a dedicated fund intended to expand UPI acceptance among small merchants.
According to the US Trade Representative's 2026 National Trade Estimate Report on foreign trade barriers, the US continued to raise concerns over informal and formal policies with respect to electronic payment services that appear to favour Indian domestic suppliers over foreign suppliers, creating a non-level playing field.
It has expressed concerns over the inability of US electronic payment services suppliers to participate in the UPI ecosystem, including credit transactions on UPI on a level playing field with RuPay.
The US has also stated that in November 2020, NPCI announced a market share limitation of 30 per cent, measured by transactions, for third-party app providers initiating online payments made through India's UPI.
While this market share cap for third-party payment apps was originally mandated for January 2023, NPCI has deferred enforcement, with the current deadline set for December 2026.
As of December 31, 2025, two US-owned EPA (Electronic Payment Acceptance) suppliers together processed more than 80 per cent of all UPI transactions, it has said.
"The United States also has expressed concern over plans to expand the adoption of a National Common Mobility Card (NCMC), which could disadvantage foreign suppliers," the report has said.
"Who gains immediately? PhonePe could be the biggest beneficiary. The Walmart-owned company processes around 45 per cent of UPI transactions. It was valued at $12 billion in 2023, but paused its India IPO in March 2026 after its estimated valuation reportedly fell below $10 billion," GTRI Founder Ajay Srivastava has said in a social media post.
He added that even a share of MDR revenue could add billions of dollars to its IPO valuation.
According to him, PhonePe and Google Pay together process more than 80 per cent of UPI transactions. Amazon and other foreign platforms are also expanding.
"India has already given American technology companies extraordinary access to UPI - a publicly funded payment infrastructure built by Indian institutions and banks. These platforms receive massive transaction volumes and valuable insights into the spending behaviour of hundreds of millions of Indians," he said.
He added that India could instead impose an annual participation fee, perhaps $100 million, on each dominant foreign platform benefiting from UPI.
"Yet the government appears ready to shift the cost to merchants, who will eventually pass it on to consumers. The change also seems aligned with US grievances against India's UPI, RuPay card, which hurt the business of American Visa and Mastercard in India," he said.
India should not accept unreasonable demands that weaken successful Indian public infrastructure and transfer value from Indian consumers to American corporations, he pointed out.
"UPI is one of India's greatest digital achievements. It should remain a no-cost public good, not become a revenue stream for foreign technology giants," Srivastava said.