Return of MDR a key step towards making UPI sustainable and enabling further growth: Experts

The decision to impose 0.4% MDR on UPI transactions above Rs 2,000 is an important step in creating a sustainable foundation and giving incentives for further expansion in rural and semi-urban areas while ensuring that the large majority of payments remain free of charge, experts said on Wednesday.

It has also been decided to create a dedicated fund for promoting the use of UPI by small merchants, to be set up with a contribution of 5% of total MDR collections. This initiative will expand UPI acceptance, encourage sustained usage, and accelerate the inclusion of small businesses in India's digital payments ecosystem, they said.

According to PayU CEO Anirban Mukherjee UPI's real achievement is that millions of merchants and hundreds of millions of customers, across towns and cities of every size, are now part of the digital economy..


The return of MDR is an important step in creating that sustainable foundation and enabling UPI to scale further.

Effective October 15, UPI payments to merchants (P2M) above Rs 2,000 will attract a 0.4% merchant discount rate with an overall cap of Rs 300. Besides, a flat concessional MDR rate of Rs 5 would be applicable on specific merchant categories such as railways, telecom services, insurance, and fuel for transaction above Rs 2,000.

A calibrated MDR finally gives the ecosystem a way to fund that directly, and to invest in areas like fraud prevention, acceptance infrastructure in smaller towns etc, Cashfree co-founder Reeju Datta said.

It will also incentive newer players to enter the market and innovate for different use cases which in turn would increase adoption for UPI further, he added.

The share of Person to Merchant UPI transactions above Rs 2,000 has steadily increased from 15.1% in FY23 to 20.1% in the June quarter of FY27, reflecting a sustained shift towards higher-value merchant payments on UPI.

Resurgent India Managing Director Jyoti Prakash Gadia said the decision shows that India is duly maturing in its digital payment systems space.

"With the growth of the UPI system, ensuring a balance of affordable and sustainable digital payment services will be the key. A robust sustainable financial payment system will be able to drive innovation and quality of services in line with future digital economic growth of India," he said.

As per Spice Money CEO Dilip Modi, the introduction of a calibrated MDR on higher-value person-to-merchant transactions marks an important step towards building sustainable economics for the ecosystem.

A balanced MDR framework can help create sustainable economics for the banks, payment providers and last-mile networks that invest in the infrastructure and services enabling these transactions, while ensuring that cost does not become a barrier to digital payment adoption, he said.

"This small fee will help banks recover operational costs and invest more in security, reliability, and innovation. In the long run, it will make the digital payments network stronger and more stable," BLS E‑Services Deputy CEO Ashish Misra said.

For merchants, he said, the impact will be minimal because the fee applies only to higher‑value transactions. For customers, UPI remains free.

Overall, this move will support a healthier banking system, encourage more investment in digital services, and ensure that India's payments network continues to grow safely and efficiently, he added.

Essential services - railways, telecom, fuel and insurance - get a flat Rs 5 fee per transaction above Rs 2,000.

Capital markets transactions (mutual funds, stockbroking) get a lower 0.02% rate, also capped at Rs 300.

Small merchants collecting up to Rs 1 lakh a month via UPI QR codes remain fully exempt from any new charge - a carve-out officials say shields about 96% of all merchant transactions.