Summary:
NPCI will introduce a 0.4% MDR on specified UPI merchant transactions above ₹2,000 from October 15, 2026, while P2P payments and eligible small-value transactions remain free. The new framework could create revenue opportunities for banks, fintechs and payment platforms.
The National Payments Corporation of India (NPCI) has notified a Merchant Discount Rate (MDR) of 0.4% for Person-to-Merchant (P2M) UPI transactions of more than ₹2,000. This new framework will take effect from October 15, 2026 and enable banks, payment aggregators, fintech platforms and businesses to update their technology systems and billing processes.
The MDR will only apply to merchant payments and will have no impact on person-to-person UPI transfers. Transactions of less than ₹2,000 made to merchants will remain free.
For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction. Merchant Discount Rate refers to the fee paid by a merchant for accepting digital payment through a payment channel. The charge typically consists of a percentage of the transaction value which is deducted before the merchant receives the final settlement amount.
Small-Value UPI Payments will remain free
This framework has been designed to enable the everyday digital payments to remain accessible. Over 95% of P2M UPI transaction volumes are below ₹2,000 and will not attract any MDR.
The government has clarified that consumers will not be charged for making UPI payments. Person-to-person transactions will remain free and small-value merchant payments will also remain outside the MDR framework.
A gazette notification issued on September 14 stated that banks and payment system providers cannot charge any direct or indirect charges on individuals making or receiving payments through UPI transactions of up to ₹2,000 or through RuPay debit cards.
The move follows amendments to Section 10A of the Payment and Settlement Systems Act, 2007, which created a framework for introducing MDR on certain electronic payment transactions. The amendment was passed during the Monsoon Session of Parliament.
Decision taken after industry consultation
The MDR structure was reviewed by a 22-member panel, comprising banks, payment service providers and industry associations. The UPI & Services Steering Committee, which includes representatives of organisations such as Indian Banks' Association and Payments Council of India, reviewed factors such as ecosystem sustainability and future growth requirements.
The introduction of MDR aligns with practices followed in other digital payment systems around the world. Brazil's PIX system has merchant charges of around 0.33%, while China's digital payment ecosystem charges around 0.40%.
UPI Network continues rapid expansion
India's UPI ecosystem has had a massive growth post-launch in August 2016. Transaction value has jumped from ₹0.07 lakh crore in FY17 to about ₹314 lakh crore in FY26, growing more than a 4,000-fold over a decade.
In July 2026 alone, UPI processed 2,366 crore transactions worth ₹29.9 lakh crore. The platform has also gained international traction and is now accepted in 11 countries including Singapore, the UAE, France, Mauritius, Nepal, Bhutan, Qatar, Sri Lanka, Cambodia, Greece and Uzbekistan.
Impact on payment companies and digital ecosystem
The introduction of MDR could be a win for banks, payment aggregators and fintech companies involved in merchant payment infrastructure, but the impact will depend on how the additional charges are distributed across the ecosystem and whether the merchants tweak their payment strategies.
For the digital payment companies like Paytm, operated by One 97 Communications, the move could aid the long-term sustainability of UPI infrastructure, but the higher transaction costs for certain merchant categories could influence payment behaviour.
