The National Payments Corporation of India (NPCI) announced today that it has delayed the implementation of the Merchant Discount Rate (MDR) for select UPI transactions until after Diwali. The charges, originally scheduled to take effect on October 15, 2026, will now be introduced on a date to be notified separately.
MDR is the fee merchants pay banks for processing digital payments. Under the proposed fee structure, select person-to-merchant (P2M) UPI transactions will attract an MDR of 0.4%. This means a merchant would pay Rs 8 on a Rs 2,000 transaction and Rs 40 on a Rs 10,000 transaction. However, the rates vary by transaction category. For instance, loan repayments through autopay mandates attract a flat fee of Rs 5. The same flat fee applies to transactions in sectors such as telecom, education, fuel, railways, and insurance.
Merchants had sought a delay in the roll-out: Merchant bodies, fintechs and payments companies had urged NPCI to postpone the implementation of UPI MDR until January 2027. They argued that the industry needed more time to understand the different rates, policies and their applicability across transaction categories.
Moreover, the government was concerned that the charges could raise business costs during festive sales, when inflation was already putting pressure on consumers and merchants. Industry sources also warned that higher payment costs could weaken consumer sentiment.
Why merchants have opposed the charges: Merchant associations have warned that the new UPI MDR could increase operating costs and encourage small businesses to return to cash payments. The Retailers Association of India (RAI) argued that a 0.4% fee could make accepting cash more economical for smaller merchants. It also said merchants should not have to fund the upkeep of the UPI network.
The Madhya Pradesh Petroleum Dealers Association said petrol pump operators could not absorb the additional expense given their thin margins. It estimated that dealers could lose around Rs 17,700 a month on UPI transactions above Rs 2,000. Similarly, the Clothing Manufacturers Association of India (CMAI) warned that the charges could squeeze already strained margins, dampen consumption and hinder formalisation. Traders in Ghaziabad have also threatened to stop accepting UPI for high-value purchases.
Also read:
- Who pays for UPI? India’s new MDR reopens an old payments debate
- PhonePe, Paytm, MobiKwik back UPI MDR above Rs 2,000
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