Mohandas Pai, former Chief Financial Officer of Infosys, has offered reassurance regarding the recently introduced Merchant Discount Rate (MDR) on high-value UPI transactions. Speaking to ANI, Pai asserted that the new framework, set to take effect on October 15, 2026, will leave 96% of all UPI transactions unaffected.
The Centre’s decision mandates a 0.4% MDR on eligible Person-to-Merchant (P2M) UPI transactions exceeding ₹2,000. Crucially, person-to-person (P2P) payments will remain entirely free, as will P2M transactions valued at or below ₹2,000.
Understanding the Limited UPI MDR Impact
Pai elaborated on why the impact would be minimal:
- Approximately 70% of all UPI payments are P2P, which carry no charges.
- The remaining P2M transactions under ₹2,000 are also exempt from MDR.
“96% of UPI transactions will not be affected by MDR at all,” Pai stated. He also suggested a practical workaround for consumers facing higher charges: splitting larger payments. For example, a ₹2,500 transaction could be divided into two smaller payments of ₹1,500 and ₹1,000 to remain below the ₹2,000 threshold and avoid the MDR.
MDR: Not a Tax, But a Service Fee
Pai emphasized the distinction between MDR and a tax, clarifying that the MDR is a payment to banks and payment service providers. “It is a payment made to the banks and payment providers, similar to how credit cards work,” he explained, underscoring its role in compensating financial institutions for processing transactions and maintaining the robust UPI infrastructure.
“It is important to clarify that MDR is not a tax. It is a payment made to the banks and payment providers, similar to how credit cards work.” – Mohandas Pai
The former Infosys CFO also highlighted the significant investments required to sustain and upgrade the rapidly expanding UPI ecosystem. With transaction volumes projected to grow from 24.5 billion in August 2026 (totaling ₹29.8 lakh crore) to 50 billion within two years, continuous funding for IT infrastructure and real-time processing capacity is essential. Pai noted that banks, fintech firms, and digital payment companies have historically borne these substantial costs under a free regime.
The new MDR framework aims to create a sustainable revenue stream for the UPI ecosystem, ensuring its continued growth and technological advancement while protecting consumers from charges on most everyday transactions.