UPI MDR explained: How new charges compare with debit, credit cards

Credit cards can cost merchants 1.5-2.5%, while debit cards can cost up to 0.9%; new UPI MDR is capped at Rs 300

The National Payments Corporation of India (NPCI) will introduce a Merchant Discount Rate (MDR) on select person-to-merchant (P2M) UPI transactions from October 15, 2026.

The key point for consumers is that UPI payments will remain free. The MDR is a charge on merchants for processing eligible transactions.

For P2M transactions above Rs 2,000, the MDR will be 0.4 per cent. However, once the transaction reaches Rs 75,000, the charge is capped at Rs 300.

NPCI, in its September 15 “frequently asked questions (FAQ)” on the new framework, said transactions up to Rs 2,000 account for more than 95 per cent of UPI P2M transaction volume and will remain unaffected.

Person-to-person (P2P) transfers will also continue to carry zero charges.

How UPI compares with debit and credit cards

Even after the introduction of MDR, the merchant cost of accepting UPI remains lower than that of conventional card payments, according to NPCI.

NPCI's FAQ says standard credit card MDR typically ranges between 1.5 per cent and 2.5 per cent, while debit card MDR is capped at up to 0.90 per cent.

This means a merchant accepting a Rs 50,000 payment could pay Rs 200 in UPI MDR under the new framework. A credit card transaction at 1.5 per cent, by comparison, would involve Rs 750 in MDR before considering the applicable rate and arrangements between the parties.

The actual cost for card acceptance can vary depending on the merchant, acquirer, card network and other arrangements.

The new framework does not mean every shopkeeper accepting UPI will start paying MDR.

NPCI’s FAQ says merchants classified under the P2PM framework, which covers small vendors receiving up to Rs 1 lakh a month through UPI QR directly into their accounts, will continue to receive zero-MDR treatment.

Importantly, NPCI says a P2PM merchant does not become liable for MDR simply because an individual customer makes a payment above Rs 2,000. Eligibility depends on the merchant's classification.

Small merchants also do not need to replace their existing UPI QR codes because of the new framework, according to NPCI.

Certain categories will not face the standard 0.4 per cent rate on transactions above Rs 2,000.

For specified sectors, including railways, telecom, insurance and fuel, NPCI has prescribed a flat MDR of Rs 5 per transaction above the threshold.

This can make a substantial difference for larger payments.

For instance, a Rs 50,000 insurance premium payment in an eligible category would attract a Rs 5 MDR rather than the Rs 200 that would result from applying 0.4 per cent.

NPCI’s FAQ also identifies utility payments such as electricity and water as designated industry categories eligible for the concessional treatment.

What about UPI payments using a credit card?

This is an important distinction.

The new 0.4 per cent MDR does not apply to credit-linked UPI payments, according to NPCI. This includes RuPay credit cards linked to UPI and pre-sanctioned bank credit lines.

Such transactions involve credit being extended by the issuing institution and therefore continue to follow the rules applicable to the underlying credit product.

In other words, using UPI does not automatically mean that every transaction will fall under the new 0.4 per cent MDR framework. The funding source matters.

Will customers see a new UPI fee?

No. NPCI's FAQ explicitly states that consumers will continue to make UPI payments without transaction charges.

It also says UPI app providers cannot levy a platform fee or another charge on UPI payments.

Merchants, meanwhile, cannot pass the MDR on to buyers as a separate UPI payment charge under the framework, according to NPCI.

The stated purpose of introducing MDR is to create a revenue stream for the UPI ecosystem. NPCI says the money will support areas such as infrastructure, cybersecurity, innovation and customer service.

The organisation also says a dedicated fund is proposed to support UPI acceptance among small merchants, particularly in smaller towns and rural areas. The detailed framework for that fund is to be finalised in consultation with the Reserve Bank of India.

NPCI said the revised framework takes effect on October 15, 2026, giving banks, payment aggregators and fintech companies time to update their systems.