What is this 'new' fee everyone is talking about?
The conversation is about a Merchant Discount Rate (MDR), which is essentially a fee merchants pay to accept digital payments. In September 2026, the National Payments Corporation of India (NPCI) formally notified a framework where a 0.4% MDR applies
to certain merchant transactions over ₹2,000, effective from October 15, 2026. This isn't a fee for customers. The government and NPCI have been clear: individuals will not be charged for making UPI payments. This MDR is a charge levied on the merchant's side to help sustain the payments ecosystem.
Does this apply to all UPI payments over ₹2,000?
No, and this is the most crucial point of clarification. The new framework does not affect all UPI transactions. Person-to-person (P2P) payments, like sending money to a friend, remain completely free, regardless of the amount. Furthermore, person-to-merchant (P2M) payments up to ₹2,000 are also exempt. This means the vast majority of daily UPI transactions, which are small-value, are not impacted. According to the Ministry of Finance, approximately 96% of all merchant transactions will remain unaffected by the MDR.
So who actually pays, and when?
The fee primarily applies to merchants for transactions above ₹2,000. It's not a blanket charge. One specific area of focus is payments made via Prepaid Payment Instruments (PPIs), such as digital wallets, linked to UPI. When a customer uses a wallet to pay a merchant over UPI for an amount exceeding ₹2,000, an interchange fee (a type of MDR) of up to 1.1% can be levied. This fee is paid by the merchant's bank to the customer's wallet issuer to cover transaction costs. Standard bank-to-bank UPI transfers, even for large amounts, do not attract these specific charges for the user.
How do large online payments fit in?
Large online businesses are where this framework has the most significant impact. These merchants often process high volumes of transactions above the ₹2,000 threshold. The 0.4% MDR applies to these specific person-to-merchant payments. For very large transactions of ₹75,000 and above, the fee is capped at a maximum of ₹300. NPCI and banks have been instructed to ensure that merchants do not pass this cost on to consumers by adding a surcharge. The fee is meant to be absorbed by the business as an operational cost, similar to fees for accepting credit or debit cards, though the UPI MDR is significantly lower than typical card fees.
Why was this framework introduced?
For years, UPI operated on a zero-MDR model to drive adoption, with the government subsidising the costs incurred by banks and payment service providers. However, with UPI processing billions of transactions monthly, this model became financially unsustainable for the ecosystem. The introduction of a nominal MDR on high-value merchant transactions is designed to create a self-sustaining revenue model for payment companies. This revenue helps cover the massive costs of maintaining and upgrading the infrastructure, enhancing cybersecurity, and preventing fraud, ensuring the long-term health and reliability of the UPI network.
