NEW DELHI: India’s digital payments ecosystem is preparing for a major change as a new Merchant Discount Rate (MDR) framework for UPI merchant transactions gets set to take effect from October 15, 2026.
The development received support from a group of around 20 fintech companies, including Groww, BharatPe, MobiKwik and Fam, whose founders and senior executives met NPCI CEO Dilip Asbe on September 17 to discuss the implementation of the new framework.
Fintech Industry Backs MDR
The meeting, organised by the Startup Policy Forum, focused on the practical implementation of MDR and its implications for payment companies.
According to people familiar with the meeting, most participants expressed a positive view of the new fee structure. Executives acknowledged that there could be operational challenges when the system is rolled out but said the industry expected to be able to address them.
BharatPe separately confirmed its support for the new UPI MDR framework, saying the company believes it can contribute to the long-term development of the digital payments ecosystem.
What Is Changing From October 15?
Under the new framework, UPI merchant transactions above ₹2,000 will generally attract an MDR of 0.4%, with the charge capped at ₹300 per transaction for transactions of ₹75,000 and above.
The fee is part of the merchant-payment ecosystem and is not supposed to be charged directly to customers.
For example, a ₹10,000 eligible merchant transaction would attract an MDR of ₹40 under the standard 0.4% rate.
Most UPI Transactions Will Remain Free
The new system does not mean UPI will start charging consumers for every payment.
According to the Finance Ministry:
- Person-to-person UPI payments will remain free, regardless of the amount.
- Merchant payments up to ₹2,000 will remain free.
- Small merchants receiving up to ₹1 lakh per month through qualifying UPI QR transactions will continue under zero MDR.
- Around 96% of person-to-merchant transactions are expected to remain unaffected.
- Customers cannot be charged the MDR by merchants.
Certain sectors will also receive a different treatment. UPI merchant transactions above ₹2,000 involving fuel, telecommunications, insurance, railways and agricultural inputs will attract a flat ₹5 MDR rather than the standard 0.4% rate.
Why Fintech Companies Support the Move
UPI has largely operated under a zero-MDR model since 2020. While the system has helped accelerate digital payments, payment companies and banks have faced challenges in generating direct revenue from the enormous volume of transactions processed through UPI.
The new framework creates a revenue stream for participants in the payment ecosystem, including issuing banks, acquiring banks and UPI applications.
The change could therefore provide additional economic incentives for companies to maintain and invest in the infrastructure supporting India’s rapidly expanding digital payments network.
UPI currently processes more than 24.5 billion transactions every month, with the monthly transaction value approaching ₹30 lakh crore, according to industry data cited by Moneycontrol.
Not All Fintech Players Have the Same Concerns
While the latest meeting saw broad support for MDR, some UPI applications have raised concerns about other parts of the new framework.
Third-party UPI apps have reportedly objected to restrictions on platform fees for bill payments, arguing that their share of MDR revenue may not fully cover the costs associated with processing certain transactions through the Bharat Bill Payment System.
This means the transition is likely to involve discussions around operational costs, revenue sharing and how different categories of UPI transactions are handled.
What It Means for Consumers
For ordinary UPI users, the immediate impact is expected to be limited.
A customer paying ₹500 or ₹1,500 to a shop through UPI will continue to make the payment without MDR. Likewise, sending money to another individual will remain free.
The change primarily concerns eligible higher-value payments made to merchants, with the MDR being handled within the payment ecosystem rather than being added to the customer’s bill.
The new system will therefore mark a significant shift in how India’s UPI ecosystem is funded, while retaining free UPI payments for individuals and most smaller merchant transactions.
