Govt May Charge MDR on UPI Payments Over ₹3,000
India is exploring the reintroduction of a modest Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions exceeding ₹3,000. This potential shift aims to bolster the sustainability of the country’s booming digital payments system without impacting everyday users.
UPI charges
Since UPI’s launch in 2016 and the removal of MDR in early 2020, it has dominated India’s retail digital payments, accounting for nearly 80% of transactions. The “MDR-free” model helped propel UPI’s meteoric rise, but banks and fintech providers now face increasing costs related to cyber‑security, upgrades, and maintenance of high-volume infrastructure. Authorities are evaluating whether a small MDR on high-value transactions—beyond ₹3,000—could help offset these costs. Stakeholders including the PMO, Department of Financial Services, and NPCI have held internal consultations on the matter.
Merchant discount rate
Proposals currently under discussion suggest a low MDR rate of around 0.3% for UPI payments above ₹3,000. While still significantly lower than the 0.9–2% MDR applied to card payments, even this small charge could generate substantial revenue to support continued expansion and innovation. Crucially, any MDR cost would be borne by merchants—not consumers—to ensure user adoption remains unaffected. Some suggestions also include maintaining zero MDR for RuPay credit card transactions, providing merchants with flexible options in managing payment costs.
Digital sustainability
UPI has surpassed ₹60 lakh crore in total person-to-merchant volume. However, most infrastructure expenses fall on banks and NPCI, with only ₹1,500 crore of the annual estimated ₹10,000 crore cost currently subsidised. The introduction of a nominal MDR for high-value transactions could help cover these shortfalls, supporting ongoing investments in secure, efficient payment systems.
What to expect
No formal decision has been reached yet. Discussions are ongoing, and implementation—should it proceed—may take one to two months. Government teams and industry bodies like remedies committees will finalize the MDR percentage, structure, exemptions, and enforcement timelines, all while aiming to preserve UPI’s appeal. Once enacted, only merchant payments above ₹3,000 would incur the charge, keeping the bulk of everyday transactions fee-free.
