Summary:
The Centre is considering a 0.25%-0.35% MDR on UPI payments above ₹2,000 for large merchants to support banks and fintech firms. Small merchants are expected to remain exempt. The proposal aims to strengthen the digital payments ecosystem while improving monetisation for payment providers.
The Centre is planning to introduce the Merchant Discount Rate (MDR) on certain UPI transactions to establish a profitable business model for banks, PSPs, and fintech firms. The expected MDR may be from 0.25% to 0.35% on UPI transactions exceeding ₹2,000 carried out by large merchants.
The decision has been taken after making changes in the law through an amendment bill submitted in Parliament to the Payment and Settlement Systems Act, 2007. Under this bill, the government can impose fees on UPI and RuPay debit card transactions.
Proposed MDR Structure for Large Merchants
In the new proposed scheme, the merchants whose turnovers do not exceed ₹1.5 crore annually are expected to continue being exempted from MDR irrespective of the transaction amount. The government wants to achieve a balance between generating revenues and ensuring affordability of digital payments to small businesses and customers.
MDR is a fee which is levied on the merchants by banks and payment processors as a cost for enabling digital transactions. The government had scrapped MDR on UPI and RuPay debit card payments since January 2020 to promote adoption of digital payments.
However, there have been efforts by the government to compensate for loss in revenue. But the stakeholders have claimed that the current incentive model is not enough to take care of increasing costs of sustaining digital payment infrastructure.
High-Value UPI Transactions Could Generate Significant Revenue
As per industry estimates, an MDR of 25 basis points (0.25%) on eligible UPI transactions can earn a revenue of about ₹13,000 crore.
Transactions having values more than ₹2,000 account for 4% of person-to-merchant (P2M) UPI transactions and constitute 67% of the total transaction volume. 86% of person-to-merchant (P2M) UPI transactions have values less than ₹500 while 10% of transactions have values in between ₹501 and ₹2,000.
Industry sources reveal that the government is considering MDR of 0.25% to 0.30%, although some estimates say the rate may range between 0.3% to 0.5%.
UPI Growth Highlights Need for Sustainable Model
UPI is the leading retail payment mechanism in India, with 23.66 billion transactions processed in July 2026 worth ₹29.9 lakh crore.
The yearly number of UPI transactions has jumped from 20 million transactions in FY17 to 241.62 billion transactions in FY26, which implies an almost 12,000 times increase. The transaction value has climbed from ₹7,000 crore to ₹314 lakh crore in the given time span.
As of now, 88% of all digital transactions in India occur via UPI. However, payment companies have pointed out that a zero MDR restricts their investments in technology, cybersecurity, and expansion of infrastructure.
Listed Stocks Likely to Get Impacted by UPI MDR Move
The introduction of MDR on high-value UPI transactions could have a mixed impact on listed companies linked to digital payments, banking, and payment infrastructure.
One97 Communications Limited could be among the key beneficiaries as the company operates a large merchant payment ecosystem. The introduction of MDR may improve monetisation opportunities for merchant payment services and support revenue growth from payment processing activities.
BharatPe and other merchant-focused fintech platforms may also benefit as payment providers could generate additional income from transaction processing. However, the final impact will depend on the revenue-sharing structure decided by regulators.
Pine Labs, which provides merchant payment solutions, could see a positive impact if MDR improves economics for payment acceptance infrastructure and merchant services.
Private sector banks such as HDFC Bank Limited, ICICI Bank Limited, and Axis Bank Limited may benefit from additional revenue opportunities as banks play a key role in payment processing and settlement infrastructure.
However, the impact on banks is expected to be relatively moderate compared with fintech and payment companies, as UPI contributes a smaller share of overall banking revenues.
The move could negatively impact large merchants and businesses that rely heavily on UPI payments, as they may face higher transaction costs once MDR is introduced. Companies with significant digital payment volumes could see a marginal increase in operating expenses.
The final market reaction will depend on the announced MDR rate, merchant eligibility criteria, and how the revenue is distributed among banks, payment service providers, and technology platforms.
