UPI MDR Rates Likely Within a Week, October Rollout in Sight

UPI MDR Rates Expected to Be Finalised Soon

The Merchant Discount Rate (MDR) framework for eligible Unified Payments Interface (UPI) transactions was moving closer to implementation, with the NPCI-led steering committee expected to finalise the rates and revenue-sharing formula within a week.

The committee had met to discuss the proposed structure, and NPCI was looking to issue the necessary circular quickly to allow banks, payment companies and merchants to prepare for the October rollout.

What Is UPI MDR?

Merchant Discount Rate, or MDR, is a fee associated with processing certain digital payments. In the UPI ecosystem, the fee structure determines how the cost of processing a merchant transaction is distributed among the various participants.

The proposed UPI MDR was being considered primarily for selected high-value merchant transactions rather than for every UPI payment.

Proposed 40 Basis Point MDR Structure

Before the final announcement, industry discussions had centred around an MDR of approximately 40 basis points, or 0.4%, for eligible high-value UPI merchant transactions.

An earlier proposal indicated that the issuing bank could receive 40% of the MDR, while the third-party application provider and acquiring bank could receive 30% each. At a 0.4% MDR, that would translate into roughly 0.16% for the issuing bank and 0.12% each for the other two participants.

The final NPCI framework subsequently confirmed a 0.4% MDR for select person-to-merchant transactions above Rs 2,000.

October 15 Rollout Confirmed

The MDR system is scheduled to take effect from October 15, 2026.

Under the announced framework, eligible person-to-merchant UPI transactions above Rs 2,000 will attract an MDR of 0.4%. For general transactions of Rs 75,000 or more, the MDR will be capped at Rs 300 per transaction.

The development marks a significant change for India's UPI ecosystem, which has operated for years without a conventional merchant fee on most transactions.

UPI Payments Below Rs 2,000 to Remain Free

The new MDR structure is not intended to cover all UPI transactions.

UPI payments up to Rs 2,000 remain protected from MDR, while person-to-person payments will continue without the new merchant fee. This means ordinary users sending money to friends or family will not be affected by the merchant MDR framework.

The government has also maintained a focus on keeping smaller digital transactions affordable and supporting continued adoption of UPI.

Consumers Will Not Directly Pay the MDR

One of the most important aspects of the new framework is that the MDR is a merchant-side charge.

Consumers are not supposed to be charged the MDR separately when making eligible UPI payments. The cost is instead incorporated into the payment ecosystem's merchant-side economics.

However, businesses could potentially consider their overall payment costs when setting prices, meaning the indirect effect on consumers will depend on how individual merchants respond.

Special Rate for Essential Services

NPCI has also announced a different structure for certain sectors.

For eligible UPI transactions above Rs 2,000 involving railways, telecom services, insurance and fuel, a flat MDR of Rs 5 per transaction will apply instead of the standard 0.4% rate.

The special treatment is intended to limit the impact on sectors where large digital payments are common but margins or public-service considerations can make percentage-based charges more significant.

Why Is UPI MDR Being Introduced?

UPI has grown into one of the world's largest digital payment systems. It processed around 24 billion transactions worth approximately $311 billion in August 2026, according to Reuters.

Operating such a large payment infrastructure requires substantial investment in technology, cybersecurity, fraud prevention and system capacity.

The introduction of MDR for selected merchant transactions is therefore expected to create a new revenue stream for banks and other participants while supporting the long-term sustainability of the UPI ecosystem.

Banks and Payment Apps Could Benefit

The MDR structure could change the economics of UPI for banks, payment applications and acquiring institutions.

Earlier industry discussions suggested that banks could receive the largest share of the proposed fee, with payment apps and acquiring banks also receiving portions of the MDR.

This could provide additional financial incentives for institutions involved in processing and supporting UPI merchant payments.

What Does the Change Mean for Merchants?

Merchants accepting eligible high-value UPI payments will have to account for MDR as part of their payment-processing costs.

The impact will vary depending on the merchant's transaction volume, average ticket size and applicable category. Businesses that primarily receive small-value UPI payments below the threshold will face less impact from the new structure.

For larger merchants, however, the introduction of MDR could become an additional operating expense.

Small Merchants Receive Protection

The new structure has also been designed to avoid putting the same burden on smaller businesses.

Reuters reported that merchants earning less than Rs 1 lakh a month through QR-code UPI payments would be exempt from the MDR. Rural and semi-urban QR transactions are also being protected under the announced framework.

These measures are aimed at ensuring that the return of MDR does not discourage small businesses from accepting digital payments.

How Will the UPI Ecosystem Change?

The introduction of MDR could mark a new phase in India's digital-payment ecosystem.

For years, UPI's rapid expansion was supported by a model in which consumers could make digital payments without conventional transaction fees. The new framework introduces a targeted monetisation model while retaining free access for consumers and smaller transactions.

The challenge will be to maintain UPI's affordability and convenience without undermining merchant adoption.

October Rollout Will Be Closely Watched

Banks, payment applications and merchants will need to update their systems before the October 15 implementation date.

The final operational details, including transaction classification, settlement processes and distribution of MDR revenue, will determine how smoothly the new system works in practice.

The rollout will also be closely watched for its effect on merchant behaviour and UPI transaction patterns.

What Should UPI Users Know?

For ordinary consumers, there is no immediate reason to stop using UPI.

Person-to-person transfers remain free, and UPI merchant transactions below the applicable threshold remain protected. The MDR is primarily a merchant-side charge on eligible high-value transactions.

Consumers should nevertheless pay attention to payment receipts and merchant disclosures once the new system becomes operational.

Bottom Line

The UPI MDR framework moved rapidly from industry discussions to implementation in September 2026.

The NPCI-led committee had been expected to finalise the rates within a week, with an October rollout in sight. NPCI subsequently confirmed a 0.4% MDR on select person-to-merchant UPI transactions above Rs 2,000, with the new system scheduled to begin on October 15, 2026.

The move introduces a new revenue model for parts of the UPI ecosystem while keeping person-to-person payments and smaller transactions free.

For merchants, the change will mean a new payment-processing cost on eligible transactions. For consumers, however, the MDR is not intended to appear as a separate UPI charge.