UPI fee: Why government is putting a price on big merchant payments

From October 15, a 0.4 per cent Merchant Discount Rate (MDR) will apply to person-to-merchant UPI payments above ₹2,000

The government is putting a price for merchants using its flagship digital payment network to accept large transactions - a shift that follows years of warnings from the payment industry that the annual subsidy budgeted for the Unified Payments Interface (UPI) never came close to covering the real cost of running it.

From October 15, a 0.4 per cent Merchant Discount Rate (MDR) will apply to person-to-merchant UPI payments above ₹2,000. The charge will be paid by merchants, not consumers, and will be capped at ₹300 for transactions of ₹75,000 or more. Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free.

The National Payments Corporation of India, which operates the UPI network, said the revenue will support investment in infrastructure resilience, cybersecurity, fraud prevention, innovation and customer service.

"The MDR is distributed only amongst the UPI ecosystem, to further invest into infrastructure resilience, innovation, cybersecurity (protecting the UPI infrastructure with banks and non-banks) and customer service," it said.

WHY NOW? The move ends a zero-MDR regime that has been in place since January 2020, when the government scrapped merchant fees on UPI and RuPay debit card transactions to accelerate digital-payments adoption, compensating banks and fintechs instead through an annual budgetary incentive scheme.