What Is Actually Changing on October 15?
The National Payments Corporation of India (NPCI) is introducing a Merchant Discount Rate (MDR) on certain UPI transactions. This is a fee that an eligible merchant pays to their bank for processing a digital payment. The good news for consumers is that you
will not pay any extra charges for making UPI payments. The changes exclusively affect merchants who accept high-value digital payments. Person-to-person (P2P) transfers, like sending money to a friend or family member, remain completely free.
Which Transactions Will Have a Charge?
The new charge applies specifically to person-to-merchant (P2M) transactions with a value greater than ₹2,000. For these transactions, an MDR of 0.4% will be levied. This means if a customer pays a merchant ₹3,000 via UPI, the merchant will incur a charge of ₹12. Importantly, any payment of ₹2,000 or less remains free of any MDR, and these smaller transactions make up over 95% of all UPI merchant payments.
Is There a Cap on These Charges?
Yes, there is a ceiling on the MDR for very large transactions. The 0.4% fee is capped at a maximum of ₹300 per transaction. This cap is reached when a transaction value hits ₹75,000. For any payment above ₹75,000, whether it's ₹1 lakh or more, the MDR will not exceed the ₹300 limit. This structure is designed to keep UPI as an affordable option for businesses accepting high-value payments compared to credit cards, which often have much higher MDRs.
Are Any Merchants Exempt?
Several key exemptions are in place to protect small businesses. Small merchants who are part of the peer-to-peer-merchant (P2PM) category and receive up to ₹1 lakh per month via UPI will continue to have zero MDR on all transactions, regardless of the amount. This means that receiving a single payment over ₹2,000 will not automatically trigger a charge for these designated small merchants. The focus of the new MDR is on larger, more established commercial enterprises.
What About Special Categories Like Fuel or Insurance?
For certain essential and low-margin sectors, a different rule applies. Instead of the 0.4% variable rate, a flat MDR of ₹5 will be charged for transactions above ₹2,000. This special rate applies to categories including fuel, railways, telecom services, insurance, and public utility bill payments. A separate, even lower MDR of 0.02% applies to capital market transactions, such as payments for mutual funds or to stockbrokers, also capped at ₹300.
Why Is This MDR Being Introduced?
The massive scale of UPI, which handles billions of transactions monthly, requires a robust and secure infrastructure. The new MDR is intended to create a sustainable revenue model to cover the operational costs of banks and payment service providers. This income helps fund investments in cybersecurity, system maintenance, and innovation within the UPI ecosystem. The government has explicitly advised banks to ensure merchants do not pass this cost on to customers.
