A formal decision on introducing a Merchant Discount Rate (MDR) for certain Unified Payments Interface (UPI) transactions could be announced soon, with the Department of Financial Services (DFS) expected to issue a notification within the next two weeks, according to sources.
The proposed move would not mean that UPI becomes a paid service for everyone. The government has indicated that the possible MDR would be restricted to a limited category of merchant transactions, while consumers would continue to make UPI payments without transaction charges.
DFS Notification Could Set the FrameworkThe first major step is expected to come from the DFS in the form of a gazette notification. The National Payments Corporation of India (NPCI) could then issue operational instructions through a circular to payment service providers and other participants in the UPI ecosystem.
The final notification is expected to clarify the most important aspects of the proposal, including which transactions would attract MDR, the applicable threshold and the rate to be charged.Until these details are officially announced, figures and categories being discussed in reports should be treated as tentative.
Will People Have to Pay to Use UPI?
No. The proposed changes are not expected to impose a charge on consumers for making UPI payments. Person-to-person transfers are also expected to remain free.The government’s stated position is that any MDR would be limited to selected merchant transactions above a specified threshold.This means ordinary users are not expected to pay a separate fee simply for using UPI to make payments.
What Does MDR Mean?
MDR refers to the fee associated with processing a digital payment. The charge is generally borne by the merchant and distributed among participants involved in processing the transaction.UPI currently operates under a zero-MDR structure. The government introduced zero MDR for UPI and RuPay debit card transactions in January 2020 to encourage wider adoption of digital payments.
Why Has the Issue Come Up?The rapid expansion of UPI has increased the need for investment in the systems that support the network. These include payment infrastructure, cybersecurity, fraud monitoring and technological upgrades.The government has described the proposed changes as an enabling measure aimed at ensuring the long-term sustainability and resilience of the digital payments ecosystem. However, it has maintained that UPI payments for citizens will remain free.
Which Transactions Could Be Charged?
No final list has been announced yet. The government has indicated that MDR, if introduced, would not apply to every UPI merchant transaction. Instead, it would be linked to certain transactions crossing a specified threshold.Several possible rates and transaction limits have been discussed publicly, but none should be considered confirmed until the official notification is issued.
Impact on Small Businesses Still Unclear
The impact on individual merchants, particularly smaller businesses, will depend on the final threshold and eligibility conditions. Since these details have not yet been notified, it is too early to determine whether particular categories of small merchants will have to pay MDR.
What to Watch For Next
The DFS gazette notification will be the key document to watch. An NPCI circular could follow with the operational guidelines required to implement the framework.Until then, there is no change in the existing UPI payment system. Consumers can continue making UPI payments without transaction charges, and person-to-person payments will remain free.The final MDR rate, transaction threshold, eligible merchant categories and implementation date will be known only after the formal government and NPCI announcements.