This amount has been paid against a budgetary allocation of more than Rs 9,000 crore over the same period, they added. The subsidy for digital payments was introduced after the Union government made MDR (merchant discount rate) on all UPI and RuPay debit card payments zero.
MDR is the charge paid by merchants to banks for digital payment settlement services.
The fintech industry is yet to receive the subsidy payout for FY26, which is typically disbursed towards the end of March. In FY25, banks and payment startups cumulatively received around Rs 1,000 crore for UPI merchant payments against a sanctioned budget of `1,500 crore, among the lowest in recent years.
ETtechIn FY25, the government withdrew the budget allocation for RuPay debit card payments. The last subsidy payout for RuPay debit cards was in FY24, when the industry received around Rs 360 crore, the people cited above said.
“The payments industry is in discussions with senior officials in the finance ministry to reconsider MDR on payments, but talks have not progressed,” one of the bankers said. The push to revisit MDR has intensified amid a slowdown in UPI payment growth over the past year.
“This has become a concern for NPCI and the broader industry since UPI has largely penetrated urban markets, and the next phase will require significant investments,” the second banker said.
A parliamentary committee report on finance for 2026-27, published earlier this month, noted that the government should consider reintroducing agraded MDR to make the ecosystem financially sustainable rather than dependent on the exchequer. The reduction in budgetary allocation comes even as UPI payments have grown exponentially, increasing financial pressure on banks and fintech startups.
“The current government incentive covers only 11% of the industry’s actual costs and 14% of potential MDR collections, creating a structural funding gap that impacts long-term infrastructure investment,” the report noted. Currently, more than 20 billion transactions are processed via UPI every month. While volumes continue to rise, growth has slowed to 25% in FY26 from 42% in FY25.
“Unless MDR is reintroduced, the fintech industry will struggle to build large incentive programmes to drive adoption in smaller towns and rural India. The next phase of growth will have to come from these markets,” one of the bankers said.
