UPI needs sustainable revenue model, MDR on high-value transactions a good move: Former RBI official

Mumbai, Aug 20 (IANS) UPI needs a sustainable revenue model to support continued investments in technology, cybersecurity and infrastructure, while the RBI's forward guidance on interest rates reflects concerns over inflation, G. Padmanabhan, former Executive Director of the Reserve Bank of India and former Chairman of Bank of India, said on Thursday. 

Speaking on the sidelines of the Global Fintech Fest 2026 here, Padmanabhan said the proposed levy of Merchant Discount Rate (MDR) charges on high-value UPI transactions would make the digital payments ecosystem more transparent and financially sustainable.

“I personally do not think so. I think I have written an article where I support this change. According to me, this will make the system much more transparent than it is today,” Padmanabhan said when asked whether MDR charges could weaken UPI.

He said the government has made it clear that small-value transactions would continue without charges for users, adding that the proposed changes could ultimately strengthen the UPI ecosystem rather than weaken it.

Padmanabhan also rejected the view that reducing the government's reimbursement burden was the primary reason behind the move to introduce charges on certain UPI transactions. He said the government's reimbursement for UPI charges was only a small component of its overall finances.

According to him, the digital payments ecosystem needs continuous investment to upgrade technology and security systems, particularly amid rising cybersecurity threats. He said there also needs to be a viable return on capital for attracting investment into the sector.

“The system has been telling the Reserve Bank and the government that there are costs to this, developments will have to happen, we will have to continuously upgrade our security systems because of cyber security issues and things like that, we need capital,” he said.

On the Reserve Bank's latest Monetary Policy Committee minutes and indications of a possible rate hike in upcoming policies, Padmanabhan said the central bank's forward guidance reflects its assessment of inflationary risks in the economy.

He said central banks across the world have been assessing the possibility of higher interest rates in response to global economic realities and that the RBI's guidance should be viewed in that context.

“The Reserve Bank comes out with an opinion based on what they see in the economy. If they see possibilities of inflation, they give a forward guidance saying that this is possible,” Padmanabhan said.

--IANS

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