NEW DELHI: The Reserve Bank of India has backed the introduction of a Merchant Discount Rate (MDR) on large-value UPI transactions, saying the move would help strengthen the long-term sustainability of India’s digital payments ecosystem.The National Payments Corporation of India (NPCI) has notified an MDR of 0.4% on person-to-merchant (P2M) UPI transactions above Rs 2,000, with the new charges set to take effect from October 15, 2026. Person-to-person (P2P) UPI transactions will continue to remain free.The RBI said the move would help UPI “continue to scale, innovate and serve consumers and businesses across the country”.“It will help UPI in continuing to scale, innovate and serve consumers and businesses across the country,” the RBI said in a post on X on Tuesday.No UPI charges for customersThe government has clarified that the new MDR is a charge within the merchant payment ecosystem and will not be directly imposed on customers.“Customers will not be required to pay any charge when making such payments through UPI,” the finance ministry said in a statement quoting the NPCI circular issued on Tuesday.“MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments,” the statement added.The RBI said all UPI transactions, both P2P and P2M, will remain free for users. P2M transactions of up to Rs 2,000 will also continue to remain free for merchants.How much will merchants pay?Under the new structure, merchants will pay an MDR of 0.4% on P2M UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.MDR is essentially a fee charged to merchants for accepting digital payments through a particular channel. It is generally calculated as a percentage of the transaction value, with the applicable amount deducted before the remaining payment is transferred to the merchant.The new rates will come into effect on October 15, giving acquiring banks, payment aggregators, fintech companies and corporate accounting platforms time to update their software and billing systems.There will be no impact on UPI transactions of up to Rs 2,000, which account for more than 95% of P2M UPI transactions by volume.The government has said the move is intended to keep everyday digital payments free while creating a sustainable revenue model for the UPI ecosystem.The RBI said a fair distribution of MDR among different participants in the payments ecosystem would support continued investment in technology, infrastructure and payment acceptance networks.“This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes,” the RBI said.“RBI remains committed to ensuring that UPI continues to be safe, seamless, affordable, and accessible, while supporting the long-term sustainability and growth of India’s world-class digital payments ecosystem,” it added.UPI is operated by the National Payments Corporation of India (NPCI), an initiative of the RBI and the Indian Banks’ Association. The platform enables real-time transfers between individuals and payments directly to merchants.UPI is now accepted in 11 countries, with Uzbekistan the latest addition. The other countries are Singapore, the UAE, France, Mauritius, Nepal, Bhutan, Qatar, Sri Lanka, Cambodia and Greece.
