Detailed Overview of Proposed MDR on Select UPI (P2M) Transactions

The Frequently Asked Questions (FAQs) dated 15 September 2026 outline a proposed framework for levying Merchant Discount Rate (MDR) on selected UPI Person-to-Merchant (P2M) transactions, effective from 15 October 2026. This framework aims to build a commercially viable model for sustaining the UPI ecosystem, without disturbing the long-standing policy of zero charges for consumers and protection for small-value and small-merchant transactions.

Under this model, P2M payments up to ₹2,000 will continue to be free from MDR. Only selected transactions above ₹2,000 will attract MDR at 0.40%, subject to a ceiling of ₹300 for each transaction of ₹75,000 and above. There are also specific rules for micro-merchants covered under the P2PM category, certain priority sectors (like fuel, telecom, insurance and railways) and capital-market related payments.

Policy Objectives and Underlying Rationale

Focus on Sustainability of the UPI Ecosystem

The FAQs emphasize that UPI has grown into a critical piece of India’s digital public infrastructure, processing billions of payments every month. To ensure it remains stable and secure, there is a need for predictable revenue to support:

  • Hardware and network infrastructure
  • Cybersecurity and fraud-monitoring systems
  • Innovation and feature enhancements
  • Banking and settlement back-end operations
  • Customer grievance redressal and support

The introduction of MDR on selected transactions is projected as a mechanism to fund these needs on an ongoing basis, rather than relying on periodic government subsidies.

Keeping UPI Affordable and Inclusive

The FAQs underline that:

  • UPI charges, even after the proposed MDR, will remain lower than typical fees on credit cards, debit cards or many wallet-based instruments.
  • More than 95% of UPI P2M transactions are stated to be for values up to ₹2,000. Since these remain MDR-free, the majority of day-to-day merchant payments are unaffected.
  • The commercial structure is designed to:
    • Preserve affordability for consumers
    • Safeguard micro and small merchants
    • Allow sustainable economics for banks, payment aggregators and UPI apps

The framework is also expected to encourage greater competition in the payments space by offering a clearer business model even for newer or smaller fintech players.

Core MDR Design for Standard P2M Transactions

Value Slabs and MDR Rates

The FAQs set out the following main MDR structure for P2M transactions:

Transaction Value MDR Rate MDR Amount / Cap
Up to ₹2,000 Nil No MDR
Above ₹2,000 and below ₹75,000 0.40% 0.40% of the transaction value
₹75,000 and above 0.40% Capped at ₹300 per transaction

Illustrative Calculations

To understand how MDR applies in practice, the FAQs provide examples. Recasting them for clarity:

  • For a UPI purchase of ₹3,000 at a merchant:

    • MDR = 0.40% of ₹3,000 = ₹12

  • For a UPI payment of ₹50,000:

    • MDR = 0.40% of ₹50,000 = ₹200

  • For a UPI payment of ₹1,00,000:

    • 0.40% of ₹1,00,000 = ₹400
    • But the MDR is capped at ₹300 for transactions of ₹75,000 and above
    • Hence, actual MDR = ₹300

These computations are relevant largely for acquirers and merchants, as consumers are not supposed to be charged MDR at the point of use.

Effective Date and Rollout

The FAQs state that the finalized MDR regime will become operational from 15 October 2026.

This lead time is meant to allow:

  • Acquiring banks
  • Payment aggregators
  • UPI application providers
  • Corporate ERPs and billing systems

to modify their software, settlement logic, invoices and contractual arrangements to comply with the revised MDR framework.

Impact on Consumers

No MDR or Platform Charges for End-Users

Under the proposal, the experience for ordinary UPI users remains unchanged in terms of charges: