Will the rollout of Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions be deferred to January 2027? The government may postpone the move which was scheduled to be effective from October 15, 2026, by a few months, according to a regulatory official and an industry executive familiar with the matter.Last month, the government ended the zero-fee regime for UPI by allowing merchants to be charged 0.4% on transactions above Rs 2,000. UPI is used by more than 500 million people across the country for payments ranging from roadside cups of tea to iPhones.The charge is scheduled to take effect on October 15, coinciding with the annual festive season, which runs from October through December and usually brings a significant increase in consumer spending.Sources told Reuters that the proposed postponement would prevent any disruption to retail payments during the festive period while giving payments companies additional time to prepare their systems for the new fee.Investors had regarded the fee as an important monetisation opportunity for payments companies, which were expected to receive a share of the proceeds.Shares of Indian digital payments companies fell on Thursday following reports of the possible delay. Paytm dropped 7.6%, while One Mobikwik Systems declined 7.2%.Yesterday, Reserve Bank of India Governor Sanjay Malhotra said that introducing a “small fee” through the MDR is unlikely to have a “major impact” on the volume of UPI transactions.“As of now, we do not see any drop in volumes. And I don’t personally think that a small fee will have a major impact on the volumes,” he told reporters at the central bank’s headquarters.
What is MDR on UPI ?
MDR refers to the charge paid by a merchant when accepting payments for goods or services through credit or debit cards. It is generally calculated as a percentage of the transaction amount and is deducted by the bank before the merchant receives the payment.The government has clarified that UPI will continue to be free for consumers, with no transaction fee imposed on person-to-person payments.The National Payments Corporation of India (NPCI) notified an MDR of 0.4% for Person-to-Merchant (P2M) UPI transactions above Rs 2,000 in September. Person-to-person payments will remain free. For transactions of Rs 75,000 or more, the MDR will be subject to a maximum charge of Rs 300 per transaction.Small-value UPI transactions of up to Rs 2,000 will not be affected. These transactions account for more than 95% of the total volume of UPI P2M transactions.The objective behind introducing a reasonable MDR is to keep UPI accessible and convenient for everyday payments while also supporting the long-term sustainability of the UPI ecosystem.A gazette notification issued on September 14 specifies that banks and system providers cannot levy any fee, whether directly or indirectly, on individuals making or receiving payments through RuPay debit cards or UPI transactions of up to Rs 2,000.The notification follows an amendment to Section 10A of the Payment and Settlement Systems Act, 2007, which established a framework allowing Merchant Discount Rate (MDR) to be imposed on payments made through UPI and other electronic payment methods notified under the law.Parliament approved the amendment Bill during the Monsoon Session in August this year.
