UPI vs debit vs credit cards: Will UPI payments with MDR charges still be cheapest? NPCI explains

From October 15, 2026, some Unified Payment Interface (UPI) Person-to-Merchant (P2M) transactions above Rs 2,000 will attract a Merchant Discount Rate (MDR) of 0.4%. However, the new charge will not apply to every UPI payment, and customers making UPI payments will not be charged MDR. It will be the merchants who will bear the MDR cost.

After the MDR charge announcement on certain merchant UPI transactions, many UPI users are thinking whether they should shift from the UPI to a debit card or a credit card for daily transactions.

The National Payments Corporation of India (NPCI), in a tweet, has explained why the UPI with a 0.4% MDR charge can still be cheaper than debit or credit card charges for the same amount.


Will debit and credit card transaction charges be cheaper than MDR charges on UPI payments?


In a social media post on X (formerly Twitter), the NPCI says that the new UPI MDR remains lower than the indicative rates generally associated with debit and credit card payments.

Payment method

Indicative merchant charge

UPI 0.4%, capped at ₹300

Debit card: Up to 0.90%

Credit card: Around 2% on average

Consider a Rs 10,000 merchant payment.

Source: NPCI tweet

Giving an example, the NPCI says that UPI MDR charges will be 80% cheaper than credit card transaction rates for merchants.

The NPCI says that at an MDR of 0.4%, the UPI charge for a Rs 10,000 P2M transaction would be Rs 40. At an indicative 2% credit card rate, the charge would be about Rs 200, says the NPCI, adding that a debit card rate of 0.9% would mean about Rs 90 charge for the same transaction.

The NPCI is the umbrella organisation that operates retail payment and settlement systems across India.

Which UPI transactions will have zero MDR charges?

For most everyday UPI payments, there will be no MDR. P2M transactions up to Rs 2,000 will continue with zero MDR, and are estimated to account for around 96% of the total UPI transactions.

What is the new UPI MDR from October 15?

For regular P2M transactions, the structure will be:

UPI transactio: n: MDR applicable

Up to Rs 2,000: Zero

Above Rs 2,000: 0.4%

Transactions of Rs 75,000 and above: Maximum Rs 300

For example, if a customer makes a Rs 10,000 UPI payment to a merchant, the MDR at 0.4% would work out to Rs 40. But if the transaction amount is Rs 1 lakh, the MDR will be Rs 300. However, it will be the merchant who will bear these costs.

Small merchants will continue to get zero MDR

Street vendors and other small businesses will not automatically face the new charge.

Merchants receiving up to Rs 1 lakh a month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to have zero MDR on all transactions.

This means neighbourhood shops, street vendors and other qualifying small businesses can continue accepting UPI payments without the new MDR, even when an individual transaction exceeds Rs 2,000.

What happens to UPI payments above Rs 2,000?

For regular P2M transactions above Rs 2,000, an MDR of 0.4% will apply.

For instance:

₹5,000 payment → MDR of ₹20

₹10,000 payment → MDR of ₹40

₹50,000 payment → MDR of ₹200

₹75,000 payment → 0.4% would be ₹300

₹1 lakh payment → MDR remains capped at ₹300

Essential services will have a separate MDR

Transactions above Rs 2,000 in certain essential and thin-margin sectors will have a flat MDR of Rs 5 per transaction.

These include sectors such as railways, telecommunications, insurance, fuel and agricultural inputs

Instead of calculating 0.4% for these transactions, the flat Rs 5 charge is intended to give businesses in these sectors greater certainty over their payment costs.

Capital-market payments get a much lower rate

A separate MDR has been prescribed for payments related to the capital market.

Transactions involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, subject to a maximum of Rs 300 per transaction.

For example, a Rs 10,000 capital-market payment at 0.02% would result in an MDR of just Rs 2.

Will the UPI become expensive for customers?

No. The MDR is a merchant-side payment processing charge and is not a charge payable by customers for making UPI payments.

Banks have been advised to ensure that merchants do not pass the MDR on to customers. UPI application providers are also not permitted to impose platform fees or hidden charges on customers on account of the MDR.

Individuals will continue to be able to use UPI without a monthly transaction quota or a tiered cap on free usage.