UPI MDR Explained: Why the Merchant Fee Is on Hold and What Happens Next

UPI MDR of 0.4% on payments above Rs 2,000 is postponed past Diwali. Here is who pays, who is exempt, and what is still undecided.

The UPI MDR debate is far from over. NPCI planned to start charging a merchant discount rate on some UPI payments from 15 October 2026, then postponed it on 13 October. This week the government again highlighted UPI's scale, which keeps the question alive: who should pay for a system that now moves tens of billions of transactions a month? Note that the postponement itself is a couple of weeks old; we include it because the new start date is still unannounced and the topic stays live.

What MDR is, in plain words

MDR stands for merchant discount rate, a small fee a merchant pays whenever a customer pays by card or other digital method. Imagine a toll booth on a road that has been free for years. The road still needs maintenance, but nobody has paid for it directly since January 2020, when the government scrapped merchant charges on UPI.

The proposal

Based on TechCrunch and Medianama reports:

- The rate is 0.4% on eligible merchant payments above Rs 2,000. A Rs 2,000 payment would attract Rs 8, and a Rs 10,000 payment Rs 40. - Payments up to Rs 2,000 and person-to-person transfers stay free. - Small merchants receiving under Rs 1 lakh a month through UPI are exempt, and fees on large transactions are capped at Rs 300, per TechCrunch. - Other categories have different rates. Loan repayments through autopay mandates attract a flat Rs 5 fee, which Medianama says also applies to telecom, education, fuel, railways and insurance.

NPCI says the money would be shared among ecosystem participants to cover infrastructure, cyber-security and fraud prevention. It estimated annual running costs at about Rs 20,000 crore (roughly Rs 200 billion).

Why it was delayed

On 13 October NPCI's steering committee postponed the rollout, citing the festive season, with the new date "to be announced separately." Medianama reported that merchant bodies, fintechs and payment firms had asked for a delay until January 2027, and that NPCI was discussing it with the finance ministry. We could not confirm the January date was ever agreed; NPCI has said only "after Diwali."

Opposition came from retailers. The Retailers Association of India said the rate could make cash attractive again for small merchants, and a petroleum dealers' association estimated its members could lose around Rs 17,700 a month on UPI payments above Rs 2,000. Some traders threatened to stop accepting UPI for high-value purchases. Executives at MobiKwik, PhonePe and Paytm backed MDR as a route to sustainability; MobiKwik said server costs alone run around 20 paise per transaction.

The scale behind the argument

NPCI data shows UPI processed 24.07 billion transactions worth Rs 29.37 trillion in September 2026. Finance Minister Nirmala Sitharaman called UPI the world's largest real-time payment system on 26 October, and the government says it is live in 11 countries and held 81% of retail digital payment transactions in FY 2024-25.

What businesses should do now

- Model your exposure: what share of your sales exceeds Rs 2,000 per payment? - Check whether you fall under the Rs 1 lakh monthly exemption. - Do not pass on charges to customers before the rules are final. - Watch NPCI circulars for the new date and any change in rates.

Key takeaways

- The proposed 0.4% MDR on UPI payments above Rs 2,000 is postponed until after Diwali; no new date has been announced. - Small payments, P2P transfers and very small merchants are exempt, and fees are capped at Rs 300. - The fight is about who funds UPI's costs, and the final design may still change.

Sources

- [TechCrunch: India delays digital payments fee rollout amid retailer pushback](https://techcrunch.com/2026/10/13/india-delays-digital-payments-fee-rollout-amid-retailer-pushback/) - [MediaNama: NPCI receives requests to delay UPI MDR rollout](https://www.medianama.com/2026/10/223-npci-upi-mdr-rollout-delay/) - [SarkariTel: NPCI defers UPI MDR rollout until after Diwali](https://www.sarkaritel.com/npci-defers-upi-mdr-rollout-after-diwali-2026/) - [Business Today: UPI leads global real-time payments](https://businesstoday.in/india/story/upi-leads-global-real-time-payments-with-over-2400-cr-monthly-transactions-nirmala-sitharaman-563559-2026-10-26)

Tags: UPI MDR NPCI digital payments merchants