Decoding the New Merchant Fee Framework
Starting October 15, 2026, a new Merchant Discount Rate (MDR) applies to some Unified Payments Interface (UPI) transactions. Specifically, a 0.4% fee is levied on person-to-merchant (P2M) payments exceeding ₹2,000. It’s crucial to understand that this
charge is not paid by the customer. Instead, it is a fee merchants pay, which is then shared among the banks and payment service providers that facilitate the transaction. This MDR is designed to create a sustainable revenue model to support the massive infrastructure behind UPI, which processed over 24 billion transactions in August 2026 alone. However, the new rule is not a blanket charge; it comes with significant exemptions. All person-to-person (P2P) transfers remain free, as do all merchant payments up to the ₹2,000 threshold.
What is UPI AutoPay?
UPI AutoPay is a feature designed for recurring payments. It allows users to set up an electronic mandate, giving a merchant permission to automatically debit their linked bank account for scheduled payments like mobile bills, insurance premiums, OTT subscriptions, or mutual fund SIPs. A user authorises the mandate once with their UPI PIN, setting a maximum amount and frequency (e.g., monthly). Subsequent debits up to ₹15,000 can then happen automatically without requiring a PIN for each transaction, making it a seamless way to handle regular expenses. This functionality is fundamentally different from a one-time merchant payment, as it is based on a pre-authorised standing instruction.
The Core Reason for the Different Treatment
The primary reason UPI AutoPay is treated differently is that it falls outside the scope of the transactions the new MDR framework was designed to cover. The fees specifically target certain one-time, high-value person-to-merchant payments. Automated recurring payments made through existing UPI mandates are explicitly excluded from this framework. This distinction is not arbitrary. The goal of the new MDR is to ensure the financial sustainability of the payments ecosystem without discouraging the very behaviours that drive digital adoption. By keeping automated, recurring bank-to-bank transfers free, regulators ensure that the convenience of services like SIPs, bill payments, and subscriptions remains frictionless for both consumers and merchants. The charge is aimed at commercial transactions, not pre-approved, automated debits that promote financial discipline and predictable cash flow.
A Strategic Push for a Subscription Economy
Exempting UPI AutoPay from merchant fees is a strategic move by the National Payments Corporation of India (NPCI) and the Reserve Bank of India (RBI) to foster a robust subscription-based economy. For years, one of the hurdles for digital subscription services in India was the friction involved in recurring payments. UPI AutoPay solves this by providing a simple, secure, and scalable solution. By ensuring these transactions remain cost-free for merchants, regulators incentivise more businesses to offer services on a recurring basis. This encourages predictable revenue streams for businesses and offers greater convenience for consumers, moving them away from manual monthly payments and towards automated financial habits. It aligns perfectly with the broader goal of deepening digital payment penetration and formalising the economy.
Impact on Consumers and Merchants
For consumers, this differential treatment means peace of mind. Your monthly SIP, Netflix subscription, or electricity bill paid via UPI AutoPay will not suddenly get more expensive or attract a 0.4% fee just because it is over ₹2,000. You can continue to set up mandates without worrying about hidden costs being passed on to you. For merchants, especially in sectors like financial services, media, and utilities, the exemption is a significant boon. They can confidently build their business models around recurring revenue without factoring in a new transaction cost. This contrasts with other one-time digital payments over ₹2,000, where they will now incur the MDR. The clear rules allow businesses to strategise effectively, encouraging the adoption of UPI AutoPay as the preferred method for collecting scheduled payments.
