The proposed introduction of Merchant Discount Rate (MDR) on UPI payments may be delayed to January 1, 2027, from the earlier proposed date of October 15. The move could give merchants relief during the crucial festive shopping season.
A final decision is expected in the coming days. The rollout timeline has reportedly been discussed by the UPI and Services Steering Committee led by the National Payments Corporation of India (NPCI).
If approved, UPI payments would continue to remain free for merchants through the Diwali-to-Christmas shopping period.
Retail trade associations have opposed the proposed MDR, arguing that introducing an additional payment cost during the festive season could put pressure on small businesses.
What is proposed under the UPI MDR framework?
Under the proposed system, the MDR would be paid by merchants, not consumers.
For eligible merchant transactions above ₹2,000, the proposed charge is:
- 0.40% of the transaction value
- Maximum ₹300 per transaction
For certain categories, including utilities, bill payments, education and fuel, a flat ₹5 charge is being considered for transactions above ₹2,000.
Consumers would not directly pay the MDR when making UPI payments.
What is MDR?
Merchant Discount Rate is a fee charged to merchants for processing digital payments. The fee is generally shared among banks and other participants involved in processing the transaction.
In simple terms, the customer makes a UPI payment, the merchant receives the money, and the payment ecosystem earns a processing fee from the merchant.
UPI has expanded rapidly in India partly because merchant transactions have historically carried zero MDR. Any change to this model could therefore have a significant impact on merchants, banks and fintech companies.
Why could the October 15 rollout be delayed?
The timing appears to be a key concern.
October to December is one of India’s busiest shopping periods, covering major festivals and year-end purchases. Introducing a new payment cost during this period could put additional pressure on merchant margins.
Retail trade associations had earlier proposed a “No UPI Day” to protest the planned charge. The call was later withdrawn following discussions with Finance Minister Nirmala Sitharaman.
A January 1, 2027 rollout would shift the proposed change to after the main festive shopping season.
Small businesses could get a bigger exemption
Another major proposal under consideration is to expand the exemption for small merchants.
Businesses with annual turnover of up to ₹40 lakh could potentially be exempt from MDR.
This would be a significant expansion from the earlier framework, under which merchants with monthly turnover of around ₹1 lakh were exempt.
If approved, the move could protect many small businesses, including:
- Kirana stores
- Small restaurants
- Independent retailers
- Local service providers
- Other micro businesses
The wider exemption could also make the final MDR framework more acceptable to smaller merchants while allowing larger businesses to contribute to the payment ecosystem.
Why the ₹2,000 threshold matters
The proposed MDR would apply only to eligible merchant transactions above ₹2,000 rather than every UPI payment.
This means everyday payments such as a ₹50 tea, ₹300 grocery purchase or ₹700 restaurant bill would remain outside the proposed higher-value MDR structure.
The impact would mainly be felt on larger-ticket transactions.
At a 0.40% MDR rate:
| Transaction | MDR |
|---|---|
| ₹2,500 | ₹10 |
| ₹5,000 | ₹20 |
| ₹10,000 | ₹40 |
| ₹25,000 | ₹100 |
| ₹50,000 | ₹200 |
| ₹75,000 and above | Maximum ₹300 |
The ₹300 cap would limit the MDR on very large transactions.
Why payment companies are watching the move
The proposed change is important for India’s payments industry because UPI has reached enormous transaction volumes while generating limited direct revenue from merchant payments under the zero-MDR model.
UPI processed around 24.07 billion transactions worth ₹29.37 lakh crore in September, according to the figures cited in the proposal. Transaction volume rose 22.6% year-on-year, while transaction value increased 18%.
At such a large scale, even a small percentage of transactions becoming monetisable could create a significant revenue opportunity for the payments ecosystem.
Companies such as Paytm, PhonePe, Pine Labs, banks and other payment processors are therefore closely watching the final framework.
However, the actual financial impact will depend on factors such as the merchants covered by exemptions, eligible transaction categories, the final MDR rate and how the fee is distributed.
Will customers have to pay more?
Not directly under the proposed structure.
The MDR would be charged to merchants rather than customers making UPI payments.
However, some merchants could potentially try to recover the additional cost through higher prices or surcharges. Whether this happens would depend on the final rules and merchant behaviour.
A broader exemption for businesses with annual turnover of up to ₹40 lakh could reduce this concern for many small merchants.
UPI transaction limits may also rise
Separately, authorities are reportedly considering increasing the daily UPI transaction limit to ₹2 lakh from ₹1 lakh for certain categories.
A higher limit could make UPI more useful for larger-value transactions.
This could create an important combination: higher UPI limits could encourage more large-ticket payments through UPI, while MDR could potentially apply to some eligible merchant transactions above ₹2,000.
What does this mean for the UPI ecosystem?
The debate is increasingly about how to balance three objectives:
- Keep UPI affordable and encourage continued adoption.
- Protect small merchants from additional costs.
- Create a sustainable revenue model for banks and fintech companies.
A January 1, 2027 rollout could give policymakers more time to finalise the framework without adding costs for merchants during the peak festive shopping season.
The takeaway
The proposed UPI MDR has not been scrapped. Its implementation may instead be shifted from October 15 to January 1, 2027.
The framework under consideration could include:
- 0.40% MDR on eligible merchant payments above ₹2,000
- ₹300 maximum fee per transaction
- ₹5 flat fee for certain categories
- No direct MDR charge on consumers
- Possible exemption for businesses with annual turnover of up to ₹40 lakh
For merchants, a January rollout would mean more time to benefit from zero-MDR UPI payments during the festive shopping season.
For India’s payments industry, however, the broader issue remains: UPI could gradually move from a completely free merchant-payment model towards a selective monetisation system.