UPI gets MDR: How 0.4% merchant fee compares with debit, credit cards

The new UPI MDR ends its zero-cost model for select high-value merchant payments; here is how the 0.4 per cent charge compares with what merchants pay to accept debit and credit cards

From October 15, merchants will have to pay a 0.4 per cent Merchant Discount Rate (MDR) on specified UPI person-to-merchant (P2M) transactions above ₹2,000. Consumers, however, will not bear the cost.

The move marks a shift for UPI, which has had no MDR since 2020. It also raises a question for businesses: once merchants start paying to accept UPI, how does its cost compare with debit and credit cards?

Under the revised framework, merchant payments of up to ₹2,000 will also remain free. Small merchants receiving up to ₹1 lakh a month through UPI QR codes under the P2PM category will continue to get zero MDR.

For transactions that do attract the standard MDR, the rate is 0.4 per cent. That means a merchant accepting a ₹10,000 UPI payment would incur ₹40 in MDR, while a ₹50,000 transaction would cost ₹200. At ₹75,000, the 0.4 per cent calculation reaches ₹300, and the same ₹300 cap applies to higher-value transactions.

Some sectors have separate rates. Transactions above ₹2,000 in railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat ₹5 MDR. Payments involving mutual funds, securities, stockbrokers and dealers will attract 0.02 per cent, capped at ₹300.