India's Unified Payments Interface (UPI) stands as one of the most successful digital public infrastructures of the past decade. It processes more than 24 billion transactions a month, accounts for nearly half of global real-time payment volume, and has become a quiet but powerful instrument of economic formalisation, technological credibility and soft power.
A critical policy decision now confronts India. The introduction of a limited Merchant Discount Rate (MDR) of 0.4 per cent on higher-value person-to-merchant transactions from 15 October 2026 is understandable on sustainability grounds. Operating a system of this scale involves substantial costs in technology, cybersecurity, fraud prevention and network resilience. An estimated annual revenue pool of ₹16,000–20,000 crore can help meet those costs.
The difficulty lies not in the principle of charging, but in the market structure into which the charge is being introduced.
Two foreign-owned applications PhonePe (majority-owned by Walmart) and Google Pay (Alphabet) together control approximately 78 per cent of UPI transaction volume. In this concentrated environment, a significant share of the new revenue accruing to third-party application providers (TPAPs) will flow to these two platforms. Indian-origin and smaller players will receive far less in both absolute and relative terms.
This outcome sits uneasily with another long-standing policy objective. Since 2020, the National Payments Corporation of India has maintained a 30 per cent volume cap on any single TPAP to prevent excessive concentration and to create space for new and domestic players. The compliance deadline currently stands at the end of 2026. Introducing a substantial revenue stream without linking it to the concentration rule risks rewarding the very dominance the cap was designed to moderate.
There is a larger strategic dimension. UPI's global expansion already underway in more than ten countries could have delivered greater returns for India in remittances, technology exports, standards-setting influence and soft power if it had been led by a diverse set of strong Indian TPAPs. A payments system predominantly fronted by foreign-owned applications limits India's ability to shape the international narrative and capture the full economic and diplomatic upside of its own innovation.
Equally important is the question of data. UPI generates high-value transactional and behavioural information that constitutes a sovereign strategic asset. As market concentration rises, so does the need for progressively stronger guardrails on data localisation, cross-border transfers and regulatory access particularly for platforms under foreign ownership or control.
A balanced path exists. The MDR framework can be designed to serve both sustainability and national interest through a transparent, time-bound revenue-sharing structure linked to market share. Until the 30 per cent volume-cap policy is fully implemented in a time-bound manner:
TPAPs exceeding 30 per cent market share could receive a maximum of only 20 per cent of the normal TPAP entitlement of MDR revenue;
TPAPs with market share of 10 per cent or below could receive the full entitlement.
This simple rule creates a direct commercial incentive for dominant platforms to moderate their share, while giving smaller and Indian-origin TPAPs significantly higher revenue retention. The differential amount can feed a dedicated fund for technology support, cybersecurity and international expansion of Indian apps. Parallel, gradually increasing data-governance requirements can be calibrated to market share.
Such an approach would not punish success. It would simply align commercial incentives with the policy goals India has already articulated: reducing concentration, fostering domestic digital champions, protecting strategic data, and maximising the global returns on a uniquely Indian public infrastructure.
UPI has already demonstrated what Indian digital public goods can achieve. The next phase must ensure that the economic architecture around it strengthens, rather than dilutes, India's digital sovereignty and long-term strategic autonomy. Sustainability and sovereignty need not be opposing goals. With careful design, they can reinforce each other.
The choices made in the coming weeks will determine whether UPI remains primarily a domestic success story or becomes a lasting platform for Indian influence in the global digital economy.
[Major General Dr. Dilawar Singh, IAV, is a distinguished strategist having held senior positions in technology, defence, and corporate governance. He serves on global boards and advises on leadership, emerging technologies, and strategic affairs, with a focus on aligning India's interests in the evolving global technological order.]
