The Supreme Court on Monday questioned the legal basis for levying merchant discount rate charges on UPI transactions, asking under what authority the fees are being collected.

The court raised the issue while hearing a matter relating to digital payments, observing that UPI was built as a free public utility and that any charges need clear legal backing.

UPI, operated by the National Payments Corporation of India, processes billions of transactions every month and has so far been free for users and merchants.

Banks and payment firms have long argued that zero MDR makes the system financially unviable and have sought a fee to cover their costs.

The court’s questions could have wide implications for India’s digital payments landscape. The matter is expected to be examined further, with the government and the Reserve Bank of India likely to be asked for their stand. Any change to the zero-MDR regime would affect millions of small merchants who rely on UPI.