Examine the institutional and regulatory architecture governing digital payment systems in India, with reference to recent developments in UPI's MDR policy.

India's digital payment ecosystem rests on a three-tier architecture — a statutory regulator, a bank-promoted operator and an incentivising executive. UPI's scale, accounting for about 49% of global real-time payment transactions [3], makes the coherence of this architecture a systemic concern rather than a technical one.

Institutional architecture

• RBI is the designated regulator of payment systems, authorising and overseeing operators under the Payment and Settlement Systems (PSS) Act, 2007 [1].
• NPCI, a bank-promoted umbrella entity, operates UPI and RuPay — an operator, not a regulator, a distinction often blurred [2].
• Ministry of Finance (DFS) supplies policy direction and fiscal support; banks, PSPs and third-party apps deliver at the last mile [1].

Regulatory and legal basis

• Zero MDR on RuPay debit cards and BHIM-UPI since January 2020, anchored in Section 10A, PSS Act and Section 269SU, Income-tax Act, 1961, which also bars passing digital-payment cost to the payer [1].
• Because the mandate is statutory, pricing is insulated from purely administrative change — a key strength.
• The revenue gap is bridged fiscally: a ₹1,500 crore incentive scheme compensates acquiring banks for low-value P2M transactions [4].

Recent developments in MDR policy

• A 2026 notification enables nominal MDR on merchant transactions above ₹2,000; the Finance Ministry clarified that all P2P and ~96% of P2M transactions by volume remain free [1].
• Any future MDR is to be decided by a "UPI and Services Steering Committee" headed by NPCI [1].

Issues it exposes

• Fee-setting shifts from primary legislation to an industry-promoted body, without merchant or consumer representation [1].
• RBI's own Discussion Paper on Charges in Payment Systems (2022) held that PSPs must earn income to fund technology and resilience — so sustainability is genuine [5].
• A flat incentive corpus against exponentially growing volumes thins per-transaction compensation [4].

Thus the architecture is legally sound but institutionally asymmetric. Retaining pricing decisions with RBI, following its own public-consultation route [5], and committing multi-year outlays [4] would reconcile inclusion with viability — sustaining UPI as digital public infrastructure rather than an annually renegotiated subsidy.