UPI payments above ₹2,000 to attract merchant fee from October

The National Payments Corporation of India (NPCI) has announced a merchant discount rate of 0.4% on certain Unified Payments Interface (UPI) transactions involving payments to merchants above ₹2,000, with the new system scheduled to take effect from October 15.

The charge will apply to person-to-merchant transactions, while person-to-person UPI transfers will remain outside the levy. According to the announcement, transactions below ₹2,000 will also not attract the charge.

For transactions of ₹75,000 and above, the merchant discount rate will be capped at ₹300 per transaction. Certain sectors, including railways, telecommunications, insurance and fuel, will instead have a flat MDR of ₹5 for eligible transactions above ₹2,000.

UPI transactions have not carried an MDR since January 2020, when the government removed the fee as part of efforts to accelerate digital payments.

The change is expected to provide a revenue stream for participants in the digital payments ecosystem, including banks and third-party payment platforms such as PhonePe, Google Pay, Paytm, Navi, CRED, Amazon Pay and Super Money.

The average merchant UPI transaction was ₹577 in August, suggesting that a large share of payments would remain below the new threshold.

The Reserve Bank of India described MDR as an important measure for the long-term sustainability of the digital payments ecosystem. It also reiterated that consumers would continue to make UPI payments without being charged.

MDR is a fee paid by merchants to payment ecosystem participants for processing digital transactions. It is already used in other payment methods, including credit and debit card transactions.