Merchant Discount Rate Changes by NPCI
The Merchant Discount Rate (MDR) introduced by the National Payments Corporation of India (NPCI) stands at 0.4% for specific Person-to-Merchant (P2M) UPI transactions exceeding Rs 2,000. This new policy is set to take effect starting October 15, 2026.
MDR Cap on High Transactions
For transactions amounting to Rs 75,000 or more, the MDR will have a cap at Rs 300 for each transaction. This implies that merchants will not incur charges exceeding Rs 300, even if 0.4% of the transaction value is larger. For instance, a transaction of Rs 1 lakh would usually incur Rs 400 under the 0.4% rate; however, the MDR payable would be restricted to Rs 300.
Zero MDR for Small Transactions
Transactions of up to Rs 2,000 will continue to be exempt from MDR charges. NPCI’s FAQ indicates that transactions of this smaller value constitute over 95% of the total volume of UPI P2M transactions.
Charges for Merchants Only
The MDR charges will apply exclusively to merchants, with consumers continuing to enjoy UPI payments at no cost. Additionally, UPI app providers are prohibited from imposing any platform fees or additional charges on UPI transactions.
Exemptions for Small Vendors
Small vendors under the Person-to-Person Merchant (P2PM) setup will remain exempt from MDR. This framework is designed for small merchants who receive up to Rs 1 lakh monthly through UPI QR codes directly into their accounts.
Special Rates for Certain Merchant Categories
For specific merchant categories, including railways, telecom services, insurance, and fuel, a flat MDR of Rs 5 will be applicable for payments above Rs 2,000, rather than applying the 0.4% rate.
Support for Small Merchants
The framework is set to propose a dedicated fund aimed at assisting small merchants in developing their digital payment infrastructure and facilitating merchant onboarding in Tier 3 to Tier 6 locations, encompassing the Northeast, Jammu & Kashmir, and Ladakh. The comprehensive framework is expected to be finalised in partnership with the Reserve Bank of India (RBI) within three months.
MDR Revenue Utilisation
According to NPCI, the revenue generated from MDR will be allocated within the UPI ecosystem to bolster infrastructure resilience, innovation, cybersecurity, and customer support.
Competitive MDR Rates
The FAQ highlights that UPI’s MDR is considerably lower than that of conventional card payment fees. The standard MDR for credit cards typically hovers between 1.5% and 2.5%, while debit card MDR is capped at a maximum of 0.9%. Under the revised framework, a transaction worth Rs 3,000 will attract a Rs 12 MDR, and a Rs 50,000 transaction will result in a Rs 200 fee. For transactions reaching Rs 75,000, the MDR will be capped at Rs 300.