Starting October 15, merchants will pay a fee — the merchant discount rate (MDR) — on UPI payments above Rs 2,000, ending six years of zero MDR. The NPCI’s FAQs, released on Tuesday, spell out who pays, who is exempt, and why. Here is what changes, and what doesn’t, for consumers and merchants
What exactly has been announced?
An MDR of 0.4% on person-to-merchant (P2M) UPI payments above Rs 2,000, payable by the merchant to its acquiring bank. For transactions of Rs 75,000 and above, the fee is capped at Rs 300. Payments up to Rs 2,000 — over 95% of P2M volume — attract no charge. The framework takes effect on October 15, giving banks, payment aggregators, and fintech apps time to update systems.
Will consumers pay anything?
No. UPI Stays free for consumers — every payment, of any size. Person-to-person transfers, including self-transfers between your own accounts, remain free for both payer and receiver, with no monthly caps or quotas. UPI apps are explicitly barred from charging platform fees on UPI payments. Scanning a QR code at a local market, kirana store, or tea stall stays free, whatever the amount.
Can shops recover fee from customers?
Not officially. Merchants cannot pass on MDR charges to customers paying by UPI; you pay only the posted price. The NPCI argues merchants will absorb the cost as routine overhead — offset by footfall, higher ticket sizes, and lower cash-handling risk — and so have no incentive to raise shelf prices.
Street vendors and small shops?
They are protected. Small merchants under the P2PM category — those receiving up to Rs 1 lakh a month via UPI QR into their accounts — pay zero MDR regardless of transaction size. Even a payment above Rs 2,000 to a P2PM merchant carries no charge, since applicability depends on the merchant’s account category, not the individual transaction. Existing QR codes and soundboxes work unchanged; no re-registration or GST registration is needed.
Do all sectors pay 0.4%?
No. Categories like fuel, insurance, telecom, railways, utilities (electricity, water, piped gas), and education pay a flat Rs 5 per transaction above Rs 2,000, instead of a percentage — protecting thin-margin and public-service sectors from cost escalation. Capital-market payments — mutual funds, brokers, securities — attract just 0.02%, capped at Rs 300, to encourage retail participation.
AutoPay mandates & credit-linked UPI
Recurring mandates — utility bills, OTT subscriptions, SIPs — carry no prescribed MDR. Credit-linked UPI, such as RuPay credit cards on UPI or credit lines, is outside this framework; it follows standard credit-card rules, since those transactions are short-term loans funded by issuing banks. The new MDR applies only to direct account-to-account UPI payments.
Why introduce a charge at all?
UPI handled 24.51 billion transactions worth Rs 29.9 lakh crore in August alone — nearly 800 million a day. Running it — servers, cybersecurity, fraud detection, bank support — costs an estimated Rs 20,000 crore a year. Government incentives were bridge funding, never a permanent substitute, and budget dependence creates uncertainty. The NPCI says MDR proceeds stay within the payments ecosystem, funding infrastructure, innovation, and security — and, it argues, a commercial revenue model lets smaller fintechs compete where only deep-pocketed players could previously absorb losses.
How does it compare with card fees?
Favourably. Credit-card MDRs typically run 1.5-2.5%, and debit cards up to 0.9%. At 0.4% with a Rs 300 ceiling, UPI remains the cheapest digital acceptance mode for merchants. Before the 2020 waiver, UPI itself carried an MDR of up to 0.3%.
End of support for small merchants?
No. A dedicated fund carved out of MDR proceeds will subsidise payment infra in tier-III to -VI centres (including the Northeast, J&K, and Ladakh) and finance merchant onboarding and incentives for small-merchant transactions, dovetailing with schemes like PM SVANidhi and PM Vishwakarma. The detailed framework will take three months.
What is still to be worked out?
How the fee gets divided. The UPI and Services Steering Committee, headed by the NPCI, decides operational criteria — including how MDR revenue is shared among issuing and acquiring banks, payment apps, and aggregators — along with category-wise caps. The small-merchant fund’s design follows within three months, in consultation with the RBI.