NPCI AND THE Finance Ministry have done what was unthinkable since 2020 — brought back a Merchant Discount Rate (MDR) on UPI. For payments above Rs 2,000, large merchants will pay 0.4%. For certain categories like rail tickets, fuel, agri inputs, credit card dues, telecom and utility bills, insurance premiums and tax payments, a flat fee of Rs 5 will apply.
The charges announced Tuesday will be reviewed every 6 months to 1 year and will be shared between banks, payment apps and payment service providers.
The math is crucial. These 'industry' payments account for 17% of UPI P2M transactions in volume and 46% in value. Overall, transactions over Rs 2,000 are only 4% of all UPI payments to merchants, but two-thirds of P2M payments by value. In 2025-26, there were over 24,000 crore UPI transactions worth Rs 314 lakh crore.
Small merchants — those receiving up to Rs 1 lakh per month via UPI QR — will face zero MDR and operate under Person-to-Person-Merchant (P2PM) framework. Those receiving over Rs 1 lakh for three months in a row move to P2M. SIP payments via UPI and recurring autopay for utilities and OTT will not face the 0.02% fee prescribed for mutual funds, securities and brokers.
The government notification a day earlier — that banks can't charge on UPI payments under Rs 2,000 and those made by RuPay debit cards — stays.
Zero MDR made UPI ubiquitous but unsustainable. Industry estimates put infrastructure and settlement costs at Rs 20,000 crore per year. While 1-3% on cards was accepted, UPI had no revenue engine, choking fintech innovation and letting only big-tech subsidize payments. The 0.4% slab is deliberately surgical — it spares the street vendor, hits the high-value utility and travel bill where merchants already absorb non-digital costs, and even funds a 5% pool to help small merchants adopt UPI. RBI backing it on X signals regulatory comfort: scale without sustainability is a bubble. The risk? Will merchants pass costs to consumers? NPCI says no — higher footfall offsets it. The next 6 months will tell.