UPI Payments Above ₹2,000 To Merchants To Attract 0.4% MDR: NPCI

UPI payments above ₹2,000 made to merchants will attract a 0.4% Merchant Discount Rate (MDR), according to detailed guidelines issued by the National Payments Corporation of India (NPCI) on Tuesday.

The move follows the Centre’s September 14 notification that UPI transactions up to ₹2,000 will continue to attract zero MDR.

The new framework applies only to person-to-merchant (P2M) transactions above ₹2,000. There will be no MDR on person-to-person (P2P) UPI transactions, regardless of the transaction amount.

For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction, according to the notification.

The 0.4% MDR will be distributed among banks, payment apps and other participants in the UPI payment ecosystem.

What Is MDR?

Merchant Discount Rate, or MDR, is a processing fee paid by merchants to banks and payment service providers when customers make digital payments.

Typically, the fee is borne by the merchant. However, in some cases, merchants may seek to recover such charges from customers, particularly for high-value card transactions.

UPI has been exempt from MDR since 2020 as part of the government’s efforts to promote digital payments and reduce dependence on cash.

Under the new framework, however, a “nominal MDR of 0.4%” will be levied on P2M UPI transactions above ₹2,000.

Flat MDR For Certain Sectors

Certain essential sectors, including railways, telecom, insurance and fuel, will attract a flat MDR of ₹5 per transaction for payments above ₹2,000.

Transactions involving mutual funds, securities, stock brokers and dealers will attract a lower MDR of 0.02%, capped at ₹300 per transaction.

There is also relief for small vendors. UPI QR-code transactions of up to ₹1 lakh per month under the Person-to-Person-Merchant (P2PM) category will continue to attract zero MDR.

According to the notification, the provision is aimed at helping informal street vendors and small businesses transition to formal merchant acquiring accounts and encouraging digital payments in the unorganised sector.

Consumer Safeguards

The new framework includes several measures aimed at ensuring that customers do not bear the cost of the new MDR.

No platform fees: UPI apps will not be permitted to charge users platform fees or hidden charges for transactions.

Merchants cannot pass on MDR: Banks have been advised to ensure that merchants do not recover MDR from customers by adding it to their bills.

UPI remains free for individuals: Individuals will continue to have access to free UPI transactions without monthly or transaction-volume limits.

Daily limits are not charges: Transaction limits ranging from ₹1 lakh to ₹5 lakh, depending on the category, are intended for security and risk-management purposes. They do not mean users will be charged after reaching a particular transaction count or value.

How Will Merchants Be Affected?

The Centre said its analysis indicates that the new MDR will affect only around 4% of merchant transactions, as the vast majority of UPI merchant payments are below the ₹2,000 threshold.

The government said the structure is designed to ensure that micro and small businesses remain largely protected from additional payment costs, while introducing a nominal charge on higher-value merchant transactions.