The Department of Financial Services (DFS), Ministry of Finance, has categorically dismissed media allegations claiming that the recent introduction of Merchant Discount Rate (MDR) on select unified payments interface (UPI) transactions was driven by external pressure. Terming the claims "patently false and misleading," the finance ministry's department issued a point-by-point clarification addressing speculative reports citing the 2026 US Trade Representative (USTR) report.
The government emphasized that the policy adjustments are aimed strictly at safeguarding India's financial sovereignty and fostering a competitive, self-sustaining ecosystem for domestic players. DFS took to microblogging platform 'X' (formerly Twitter) and delivered a written clarifiation over the current allegations reported by stakeholder groups.
Few allegations are in the media that the MDR has been introduced because of external pressure. They are giving reference to US Trade Representative (USTR) report of 2026. The USTR report has raised the following two issues:
(i) Inability of US electronic payment services… pic.twitter.com/iZ2qRPimfkAlso Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
— DFS (@DFS_India) September 17, 2026
This comes after SEBI Chairman Tuhin Kanta Pandey said that the regulator will examine concerns raised by stockbrokers over the new framework for UPI transactions. ''Few allegations are in the media that the MDR has been introduced because of external pressure. They are giving reference to US Trade Representative (USTR) report of 2026,'' said the DFS in its post on 'X'.
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The 2026 USTR report had raised two major grievances regarding India's digital payment ecosystem: the inability of foreign payment suppliers to compete on a level playing field with RuPay on the UPI network, and the impending enforcement of the National Payments Corporation of India's (NPCI) 30% market-share cap for Third-Party Application Providers (TPAPs).
Addressing these points directly, the DFS clarified the reality behind India's regulatory framework:
1. Exclusivity of RuPay Credit Cards on UPI
Rejecting claims of unfair exclusion, the DFS reiterated that an NPCI circular dated September 15, 2026, explicitly restricts UPI credit transactions to RuPay credit cards alone. The ministry affirmed that this is a deliberate and transparent policy measure aimed at establishing RuPay as the preferred choice of credit card among Indian users, rather than an arbitrary restriction.
2. Enabling Domestic Competition via MDR:
Regarding the proposed 30% volume cap on third-party application providers-first announced in November 2020 with an enforcement timeline set for December 2026 — the DFS explained why implementation had faced challenges. Without a viable revenue model, smaller and emerging players could not effectively challenge dominant market leaders.
The introduction of MDR on select high-value transactions addresses this bottleneck directly by establishing a sustainable revenue stream, equipping smaller domestic fintech firms with the financial runway needed to compete for larger market shares. Under the new UPI framework, capital-market transactions, including payments, will attract an MDR of 0.02%, capped at Rs 300 per transaction from Oct. 15.
ALSO READ: UPI MDR From Oct. 15: Who Pays, What Changes, Which Payments Stay Free?
Protecting Sovereign Payment Infrastructure
The government underscored that the policy decisions are strategically designed to bolster self-reliance rather than appease foreign entities. "Contrary to misleading claims made that MDR has been introduced under external pressure, the introduction of MDR on select high-value transactions will enable more domestic companies to operate under UPI. Thus, the action is a step in protecting India's sovereignty in the electronic payment ecosystem," the DFS stated.
The government highlighted its long-term strategy of promoting RuPay credit and debit cards as robust, indigenous alternatives to global payment networks. To ensure broad-based digital inclusion and support the ongoing expansion of the network, RuPay debit card transactions remain completely exempt from MDR. Reiterating its stance, DFS stated that the payment network's regulatory adjustments remain strictly aligned with economic interests, public access, and innovation.
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