NPCI announces MDR for UPI; merchant transactions above Rs 2,000 to attract 0.4% charge

The National Payments Corporation of India (NPCI) on Tuesday announced a 0.4% MDR (merchant discount rate) on select merchant transactions on UPI above Rs 2,000.

This will take effect on October 15. “For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction,” NPCI said in a statement.

Merchants will pay the fee to acquiring banks. A Rs 3,000 payment will attract an MDR of Rs 12, while a transaction of Rs 50,000 will mean an MDR of Rs 200. Payments of up to Rs 2,000 will remain free.


Consumers will not be charged, and person-to-person transfers will remain free regardless of value. Merchants cannot pass the MDR on to customers, and UPI (United Payments Interface) apps cannot levy platform fees or other charges on UPI payments.

The framework applies to direct bank account-to-merchant account UPI payments. Credit-linked transactions using RuPay credit cards or pre-sanctioned credit lines will continue per separate rules.

Concessional rates and exemptions

Railways, telecom, insurance, fuel, and public utility payments above Rs 2,000 will attract a flat Rs 5 MDR. Capital market transactions, including payments to mutual funds, stockbrokers, and investment platforms, will carry a 0.02% MDR capped at Rs 300.

Education payments above Rs 2,000 will have flat or capped rates, though NPCI did not specify what that would be. Recurring payments through UPI AutoPay will remain exempt.

Small merchants in the person-to-person-merchant (P2PM) category will remain zero MDR even for transactions above Rs 2,000 if QR-based UPI payments made directly to their accounts stay within Rs 1 lakh per month. Crossing that threshold for three consecutive months will move a merchant to the P2M category.

NPCI will create a fund from MDR proceeds for infrastructure and merchant onboarding in tier 3 to tier 6 geographies, the northeast, Jammu and Kashmir, and Ladakh. Its framework will be finalised with the Reserve Bank of India within three months; the allocation was not disclosed.

Meeting followed consultations

About 22 representatives of banks, payment companies, and NPCI attended Tuesday’s UPI and Services Steering Committee meeting in Mumbai, chaired by NPCI chief executive Dilip Asbe, people aware of the proceedings told ET. Several participants flew in after Monday’s gazette notification, following months of smaller group consultations, they said.

The notification replaced the blanket prohibition on charges for UPI transactions, with zero-charge protection limited to payments up to Rs 2,000. It followed parliament’s amendment to section 10A of the Payment and Settlement Systems Act, 2007. MDR on bank account-funded UPI payments had been zero since January 2020.

ET first reported on July 16 that the government was moving to restore MDR on UPI with a Rs 2,000 threshold. ET reported on September 11 that a rate of about 40 basis points was under consideration, and reported earlier on Tuesday that the rollout could begin in October.

Revenue split undisclosed

The FAQs do not disclose the revenue-sharing formula. ET reported on September 11 that one proposal allocated 40% to the issuing bank, 30% to the consumer-side application, and 30% to the acquiring side — i.e., 16 bps, 12 bps, and 12 bps, respectively.

Under that proposal, payment aggregators such as Razorpay and Cashfree would negotiate a cut of the acquiring-side chunk with acquiring banks. Google Pay, PhonePe, and their partner banks would share the consumer-side pool. Bernstein said app-bank splits would likely be negotiated commercially.

Bernstein estimated that a 40 bps MDR applied to half the UPI merchant payments by value could generate a Rs 22,000 crore annual revenue pool by 2027-28. NPCI said that more than 95% of the UPI merchant payment volume is Rs 2,000 or below. Above-threshold payments account for about 4% of the volume but 67% of the value, according to Jefferies.

UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August.