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What is the story about?
From October 15, person-to-merchant (P2M) transactions through the Unified Payments Interface (UPI) will attract a merchant discount rate (MDR) of 0.4% for transactions above ₹2,000.
Large transactions above ₹75,000 have MDR capped at ₹300 in the P2M category. Essentially, the chargeable transaction is set at ₹2,000-75,000 range while the transition threshold from person-to-person to P2M classification is at ₹1 lakh for three consecutive months.
Small merchants are worried about the impact of MDR, especially those with thin margins and operating with their transaction mix concentrated in the ₹2,000-75,000 range.
Gig workers who accept customer payments directly in their own UPI accounts also face concerns of classification once the payment receipts cross ₹1 lakh mark for three consecutive months.
Merchant classification concern
Once a professional crosses the threshold for 3 months, a merchant classification would get applied but a recourse is not provided if the receipts fall in subsequent months.
“The current framework does not specify whether the move to P2M is permanent, or whether a merchant can revert to P2PM if monthly UPI receipts subsequently fall below ₹1 lakh. What it clearly defines is the upward transition. A look-back or periodic reassessment mechanism is not separately provided for at present and may be further defined as the framework evolves,” says Dharmender Jhamb, Partner & Fintech Industry Leader, Grant Thornton.
Retailers have started expressing concerns on the possibility of being classified in the P2M category. In a letter to the Finance Ministry on Sept 16, the Association of All India Mobile Retailers (AIMRA) urged the government to exempt small and medium mobile retailers from MDR on UPI transactions. “For a small retailer processing ₹10-14 lakh monthly via UPI, an MDR of 0.4% translates to a direct loss of ₹4,000 every month,” AIMRA said.
The industry body also warned of imminent store closures by small mobile retailers post festive season due to rising smartphone prices and decline in sales and footfalls. Trade bodies including AIMRA are set to go on a nationwide strike against using UPI on October 2 as well to protest the levy.
Likely impact on small-ticket merchants
Small-ticket jewellers are also expecting an impact. According to the World Gold Council, rising gold prices spurred purchase of light-weight, lower-carat and studded jewellery across the country in Q2 this year.
“For large purchases, MDR on UPI transactions, its not big concern due to a cap of ₹300 but jewellers with thin margins who sell light-weight jewellery, gold coins will be affected,” says Karan Jagani Jain, Co-Founder & CEO, Jwero.ai, an autonomous jewellery operating system with over 350 jewellers onboard. Jain also added that jewellers will explore alternatives to UPI if the MDR levy affects their margins.
The effect of 0.4% MDR on certain UPI transactions exposes some ride-hailing cab drivers too, who have enabled UPI on their own accounts and are concerned over bearing the cost of MDR fee.
“If a platform receives customer payments through UPI and subsequently settles the worker’s fare or service income, the worker must not be made to bear the payment-processing charge through hidden commissions, lower fares or reduced incentives,” says Said Shaik Salauddin, Co-Founder & National General Secretary, Indian Federation Of App-Based Transporter Workers.
This comes as ride-hailing apps like Uber, Ola and Rapido operate on subscription-based models for drivers in India.
“The ones who feel the impact the most are mid-sized, thin-margin businesses with a lot of tickets between ₹2,000 and ₹75,000 and little pricing power: electronics and mobile retailers, wholesalers and distributors, building materials, furniture, travel agents, local service businesses.
NPCI's own number is that 96% of transactions are unaffected. The impact is concentrated, not broad,” says Anupam Mathur, Professor of Economics at the Takshashila Institution.
The new framework also explicitly links MDR on UPI to formalisation of informal businesses. In a press release on Sept 15, the Union government said, “This system will connect the payment systems of informal street vendors and formal merchant accounts, thereby helping to increase the adoption of digital payments in the unorganised sector.”
UPI’s monetisation: From gaming, rent payments to MDR
The Payments Council Of India (PCI) formally asked for an MDR levy on large merchants of 0.3% on March 23, 2025 but the eventual rate is at 0.4%.
In August 2025, Parliament passed the Online Gaming Act, 2025 prohibiting financial transactions and advertisements related to real-money gaming. According to PhonePe’s updated draft red herring prospectus (DRHP), advertisements and transactions in relation to real-money gaming generated ₹2,449.02 million in FY25, forming 4.19% of the fintech’s gross margins.
Nearly a month after, the Reserve Bank of India’s communication of Sept 10, 2025 to PhonePe raised concerns on credit card rent payments to beneficiaries not onboarded as merchants.
PhonePe stopped payment services for rent and related categories the same month. However, the category made up 17.89% of the platform’s revenue at ₹12,622.7 million and 8.92% of its gross margins, as per the fintech’s DRHP.
Other fintechs followed the shutdown of rent-related credit card payments mechanisms. In an earnings call in February this year, MobiKwik Co-Founder & CFO Upasana Taku said, “Rentpay as a category has been shut down across all the players in the market. And so yes, it has been shut down on our platform as well. The revenue coming from Rentpay would have been there in the bill payments category in the previous quarters but in this quarter, it is negligible, if not zero.”
The company did not provide separate rentpay revenue breakup. The company has maintained that it does not track payments business on a use-case basis .
“When you make it illegal to charge for the core service, revenue migrates to adjacencies where the regulatory perimeter is thin. Rent via credit card was basically an arbitrage; it existed because a landlord is not a merchant and nobody was looking too hard, but RBI eventually closed it last year. There’s a good chance MDR charges more than compensate for this loss of revenue for rent,” says Mathur.
Also Read: Mobile phone price up 16% in India in first half of 2026, supplies to dip in double digits
Large transactions above ₹75,000 have MDR capped at ₹300 in the P2M category. Essentially, the chargeable transaction is set at ₹2,000-75,000 range while the transition threshold from person-to-person to P2M classification is at ₹1 lakh for three consecutive months.
Small merchants are worried about the impact of MDR, especially those with thin margins and operating with their transaction mix concentrated in the ₹2,000-75,000 range.
Gig workers who accept customer payments directly in their own UPI accounts also face concerns of classification once the payment receipts cross ₹1 lakh mark for three consecutive months.
Merchant classification concern
Once a professional crosses the threshold for 3 months, a merchant classification would get applied but a recourse is not provided if the receipts fall in subsequent months.
“The current framework does not specify whether the move to P2M is permanent, or whether a merchant can revert to P2PM if monthly UPI receipts subsequently fall below ₹1 lakh. What it clearly defines is the upward transition. A look-back or periodic reassessment mechanism is not separately provided for at present and may be further defined as the framework evolves,” says Dharmender Jhamb, Partner & Fintech Industry Leader, Grant Thornton.
Retailers have started expressing concerns on the possibility of being classified in the P2M category. In a letter to the Finance Ministry on Sept 16, the Association of All India Mobile Retailers (AIMRA) urged the government to exempt small and medium mobile retailers from MDR on UPI transactions. “For a small retailer processing ₹10-14 lakh monthly via UPI, an MDR of 0.4% translates to a direct loss of ₹4,000 every month,” AIMRA said.
The industry body also warned of imminent store closures by small mobile retailers post festive season due to rising smartphone prices and decline in sales and footfalls. Trade bodies including AIMRA are set to go on a nationwide strike against using UPI on October 2 as well to protest the levy.
Likely impact on small-ticket merchants
Small-ticket jewellers are also expecting an impact. According to the World Gold Council, rising gold prices spurred purchase of light-weight, lower-carat and studded jewellery across the country in Q2 this year.
“For large purchases, MDR on UPI transactions, its not big concern due to a cap of ₹300 but jewellers with thin margins who sell light-weight jewellery, gold coins will be affected,” says Karan Jagani Jain, Co-Founder & CEO, Jwero.ai, an autonomous jewellery operating system with over 350 jewellers onboard. Jain also added that jewellers will explore alternatives to UPI if the MDR levy affects their margins.
The effect of 0.4% MDR on certain UPI transactions exposes some ride-hailing cab drivers too, who have enabled UPI on their own accounts and are concerned over bearing the cost of MDR fee.
“If a platform receives customer payments through UPI and subsequently settles the worker’s fare or service income, the worker must not be made to bear the payment-processing charge through hidden commissions, lower fares or reduced incentives,” says Said Shaik Salauddin, Co-Founder & National General Secretary, Indian Federation Of App-Based Transporter Workers.
This comes as ride-hailing apps like Uber, Ola and Rapido operate on subscription-based models for drivers in India.
“The ones who feel the impact the most are mid-sized, thin-margin businesses with a lot of tickets between ₹2,000 and ₹75,000 and little pricing power: electronics and mobile retailers, wholesalers and distributors, building materials, furniture, travel agents, local service businesses.
NPCI's own number is that 96% of transactions are unaffected. The impact is concentrated, not broad,” says Anupam Mathur, Professor of Economics at the Takshashila Institution.
The new framework also explicitly links MDR on UPI to formalisation of informal businesses. In a press release on Sept 15, the Union government said, “This system will connect the payment systems of informal street vendors and formal merchant accounts, thereby helping to increase the adoption of digital payments in the unorganised sector.”
UPI’s monetisation: From gaming, rent payments to MDR
The Payments Council Of India (PCI) formally asked for an MDR levy on large merchants of 0.3% on March 23, 2025 but the eventual rate is at 0.4%.
In August 2025, Parliament passed the Online Gaming Act, 2025 prohibiting financial transactions and advertisements related to real-money gaming. According to PhonePe’s updated draft red herring prospectus (DRHP), advertisements and transactions in relation to real-money gaming generated ₹2,449.02 million in FY25, forming 4.19% of the fintech’s gross margins.
Nearly a month after, the Reserve Bank of India’s communication of Sept 10, 2025 to PhonePe raised concerns on credit card rent payments to beneficiaries not onboarded as merchants.
PhonePe stopped payment services for rent and related categories the same month. However, the category made up 17.89% of the platform’s revenue at ₹12,622.7 million and 8.92% of its gross margins, as per the fintech’s DRHP.
Other fintechs followed the shutdown of rent-related credit card payments mechanisms. In an earnings call in February this year, MobiKwik Co-Founder & CFO Upasana Taku said, “Rentpay as a category has been shut down across all the players in the market. And so yes, it has been shut down on our platform as well. The revenue coming from Rentpay would have been there in the bill payments category in the previous quarters but in this quarter, it is negligible, if not zero.”
The company did not provide separate rentpay revenue breakup. The company has maintained that it does not track payments business on a use-case basis .
“When you make it illegal to charge for the core service, revenue migrates to adjacencies where the regulatory perimeter is thin. Rent via credit card was basically an arbitrage; it existed because a landlord is not a merchant and nobody was looking too hard, but RBI eventually closed it last year. There’s a good chance MDR charges more than compensate for this loss of revenue for rent,” says Mathur.
Also Read: Mobile phone price up 16% in India in first half of 2026, supplies to dip in double digits
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