0.4% MDR On UPI Transactions: What Is Merchant Discount Rate And How Will It Affect Payments?

The National Payments Corporation of India (NPCI) announced on Tuesday that a 0.4% Merchant Discount Rate (MDR) will be charged on certain Unified Payments Interface (UPI) transactions above Rs 2,000. The revised framework will apply to Person-to-Merchant (P2M) UPI payments, with the MDR capped at Rs 300 per transaction.

Customers, however, will not have to pay any fee for making UPI payments under the new system. The 0.4% MDR will be applicable to merchants on eligible transactions exceeding Rs 2,000. Merchant Discount Rate (MDR) is a fee charged on certain digital payment transactions and distributed among players in the payment ecosystem to support infrastructure, technology and related services.

Under the proposed framework, a 0.4% MDR will apply to Person-to-Merchant (P2M) UPI transactions above Rs 2,000, with the charge capped at Rs 300 for transactions of Rs 75,000 and above. UPI processes billions of transactions every month, requiring continuous investment in infrastructure resilience, innovation, cybersecurity and customer service.

The proposed MDR is intended to provide a sustainable source of funding for the wider UPI ecosystem. The charges will apply only above the Rs 2,000 threshold, keeping UPI an affordable option for merchants while supporting the long-term sustainability of the payment network.

The proposed UPI MDR is significantly lower than traditional card-based transaction fees. Standard credit card MDRs typically range between 1.5% and 2.5% per transaction, while debit card MDRs can be capped at up to 0.90%.

With a baseline MDR of 0.4% above Rs 2,000 and a Rs 300 cap for transactions of Rs 75,000 and above, UPI would remain a relatively low-cost digital payment acceptance option for merchants. The finalised MDR framework and threshold structure will take effect from October 15, 2026.

The timeline is intended to give acquiring banks, payment aggregators, fintech applications and corporate accounting platforms enough time to update their software engines and billing systems. Most international payment systems, including digital public infrastructures, operate with economic models designed to support infrastructure and innovation.

India's approach continues to prioritise accessibility, scale and financial inclusion while seeking a sustainable funding model for UPI. The operational parameters, fee distribution models and category-wise caps will be decided by the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI).

NPCI announced a 0.4% Merchant Discount Rate (MDR) on Person-to-Merchant (P2M) UPI transactions exceeding Rs 2,000, capped at Rs 300. This charge applies to merchants. The 0.4% MDR will be applicable to merchants for eligible transactions above Rs 2,000.

Customers will not have to pay any fee for making UPI payments. The finalized MDR framework and threshold structure will take effect from October 15, 2026. This timeline allows system updates for various payment ecosystem players.

Sneha is a Senior Copy Editor at ABP Live English, covering national and global news, politics, and social developments. She approaches every story with clarity, accuracy, and a reader-focused perspective. She holds a Master's degree in Mass Communication from Central University of Jharkhand.