UPI MDR on select person-to-merchant transactions to be implemented after Diwali

The proposed 0.4% MDR on select merchant payments above ₹2,000 was earlier scheduled to begin on October 15. The charge would be capped at ₹300 per transaction.

Under the proposed structure, a merchant accepting a ₹3,000 payment would pay ₹12 at the standard 0.4% rate, subject to the applicable rules.

MDR is a fee charged to merchants for accepting digital payments. Its introduction for select UPI transactions could affect the cost of accepting digital payments for businesses, particularly merchants handling higher-value transactions.

Retailers seek relief

The All India Mobile Retailers Association and the All India Consumer Products Distributors Federation had sought a deferment, a higher exemption threshold for small merchants and an exemption for merchant-to-merchant transactions.

Under the September framework, UPI payments of up to ₹2,000 and person-to-person transfers remain free. Qualifying small merchants are also exempt from the charge. Merchants cannot pass the MDR cost on to customers.

The deferment comes as retailers and distributors prepare for heightened consumer spending during the festive season, when digital payments play a significant role in transactions across physical stores and online platforms.

Banks and payment firms await MDR revenue

The delay will push back the expected MDR revenue for banks and payment companies. The National Payments Corporation of India (NPCI) has said the income would support merchant expansion, payment infrastructure and fraud prevention.

Bank account-funded UPI transactions have carried zero MDR since January 2020, helping the payment system expand without direct transaction charges for merchants. The proposed framework introduces changes to select higher-value merchant payments while retaining exemptions for specified categories.

MDR is the fee paid by merchants to payment service providers for processing transactions. Its introduction for eligible UPI payments is intended to help fund the costs of maintaining and expanding the payments ecosystem.

The revised implementation date and any further changes to the framework are yet to be announced. The scope of eligible transactions and the exemptions available to merchants will determine the eventual impact on businesses, banks and payment companies.