Reserve Bank of India (RBI) Governor Sanjay Malhotra has expressed confidence that the upcoming merchant discount rate (MDR) on select Unified Payments Interface (UPI) transactions will not significantly deter the platform's high transaction volumes. The new MDR framework is set to take effect from October 15, 2026.
“On UPI-MDR, a decision has already been taken. As of now, we do not see any drop in UPI volumes, and I don't personally think that a small fee will have a major impact on the volumes,” Malhotra stated, addressing concerns ahead of the implementation.
Understanding the New UPI MDR Framework
The new framework introduces a 0.4% charge on eligible person-to-merchant (P2M) UPI transactions that exceed ₹2,000. It is crucial to note that this fee will be borne by the merchant and cannot be passed on to the consumer. The Department of Financial Services (DFS) under the finance ministry has explicitly clarified that UPI payments will remain free for consumers, ensuring buyers pay only the displayed price.
Key Details of the MDR Implementation:
- Effective Date: October 15, 2026
- Applicability: P2M transactions above ₹2,000
- Rate: 0.4% of the transaction value
- Consumer Impact: None. UPI remains free for users.
- Merchant Obligation: Merchants cannot levy the MDR on customers.
- Transaction Cap: For transactions of ₹75,000 and above, the MDR is capped at ₹300. For example, a ₹1 lakh transaction will incur an MDR of ₹300, not ₹400.
- Exemptions: Transactions up to ₹2,000 will continue without the new charge. These account for over 95% of total UPI P2M transactions. Small merchants operating under the P2PM framework also remain exempt.
- Person-to-Person (P2P) Transfers: These will continue to be entirely free.
The RBI Governor's comments suggest that the central bank anticipates minimal disruption to UPI usage, particularly given that the vast majority of P2M transactions fall below the ₹2,000 threshold. This measure aims to ensure the sustainability of the digital payments ecosystem without burdening the end-user.