The Reserve Bank of India (RBI) has officially supported the introduction of Merchant Discount Rates (MDR) on high-value Unified Payments Interface (UPI) transactions. This move, announced on September 15, 2026, is considered a vital step towards ensuring the long-term viability and growth of India's rapidly expanding digital payments network.
Under the new policy, a 0.4 percent MDR will apply to UPI payments made to merchants that exceed ₹2,000. For transactions of ₹75,000 or more, this fee will be capped at ₹300. This marks a significant shift from the zero-MDR regime, which had been in place since January 2020 to encourage widespread digital payment adoption but was increasingly criticized by banks and fintech companies as unsustainable.
Users Will Not Bear New UPI Charges
A key assurance from the RBI is that end-users will not be impacted by these new charges. The central bank explicitly stated, "Importantly, all UPI transactions - P2P (person-to-person) and P2M (person-to-merchant) - shall remain free for users." This means individuals making payments through UPI will continue to do so without incurring any additional fees.
Furthermore, Person-to-Person (P2P) transfers, which constitute a substantial portion of UPI's transaction value and volume, will remain entirely unaffected by the new MDR. App providers are also prohibited from adding any platform fees, and banks have been directed to ensure merchants do not pass on MDR costs to customers.
Boosting Investment and Innovation
The RBI emphasized that the introduction of MDR is intended to foster continued investment in technology, infrastructure, and acceptance networks across the UPI ecosystem. A fair distribution of these charges among participants is expected to support innovation, expand UPI's reach, deepen its customer base, and sustain transaction volume growth.
Exemptions and Special Categories
- Small Merchants: Merchants earning up to ₹1 lakh per month via UPI QR codes will remain fully exempt from the MDR. This carve-out is expected to keep approximately 96 percent of merchant transactions unaffected.
- Low-Value P2M: Person-to-Merchant (P2M) UPI transactions below ₹2,000 will also continue to be free for merchants.
- Essential Services: Specific sectors such as railways, telecom, and fuel will attract a flat fee of ₹5 per transaction, regardless of the value.
- Capital Markets: Payments related to capital market activities will benefit from a significantly lower MDR of 0.02 percent.
A portion of the revenue generated from the new MDR pool, specifically one-fifth, will be earmarked to fund UPI's expansion efforts, particularly among small merchants, further solidifying the digital payment infrastructure in India.