New Delhi, Oct. 22 -- The government has deferred the introduction of merchant discount rates (MDR) on Unified Payments Interface (UPI) transactions involving payments above Rs.2,000 until after Diwali. While it has cited the festive season as the reason, the decision reflects a broader challenge. UPI's widespread adoption, alongside the longstanding policy of free transactions, has reinforced expectations that digital payments should remain free, making the introduction of charges politically difficult.

But free transactions do not mean payments are costless. Banks and payment companies still spend money processing transactions, preventing fraud and resolving failed payments. They benefit from UPI in other ways, including by retaining c...