The central government has begun discussions with payment aggregators and other stakeholders in the Unified Payments Interface (UPI) ecosystem to ensure that the newly introduced Merchant Discount Rate (MDR) is not passed on to customers, sources said on Thursday.
The Finance Ministry is also preparing a monitoring mechanism to check that merchants do not shift the burden of the fee to consumers, amid concerns that the new charge could increase costs for people using UPI for large payments, PTI reported.
Under the new rules, a 0.4 per cent MDR will apply from October 15 to person-to-merchant UPI transactions above Rs 2,000. The fee will be paid by merchants and not customers, with the charge capped at Rs 300 for transactions of Rs 75,000 or more.
Govt Moves To Protect UPI Users
Sources said the ministry has already started engaging payment aggregators and other participants in the UPI ecosystem to sensitise them about the MDR and ensure that customers are not made to bear the cost.
The move comes amid concerns that merchants could recover the fee by increasing prices or adding a separate charge to UPI payments.
The government, however, does not expect the measure to have a significant impact on UPI usage. Sources said only around 4 per cent of total UPI transaction volume is expected to be affected by the new MDR.
They also said the change is unlikely to push consumers towards cash. RuPay debit card transactions remain free, regardless of the transaction amount.
The sources further said the MDR is not expected to have an inflationary impact, as the affected transactions form a relatively small share of overall UPI payments.
Finance Ministry Rejects US Pressure Claim
The development comes as the Finance Ministry rejected allegations that the MDR was introduced under pressure from the United States.
The Department of Financial Services said the September 15 NPCI circular does not give international credit cards an advantage over RuPay. Under the existing framework, only RuPay credit cards can be used for credit transactions on UPI.
“The allegation that MDR has been introduced under any external influence is patently false and misleading,” the DFS said in a post on X.
The clarification followed concerns raised in the US Trade Representative’s 2026 report over the inability of US electronic payment providers to participate in UPI credit transactions on an equal footing with RuPay.
The MDR has been introduced as part of efforts to create a sustainable revenue framework for the digital payments ecosystem, while person-to-person payments and most everyday merchant transactions will continue to remain free.
(With inputs from PTI)
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