India’s National Payments Corporation of India (NPCI) announced that, starting mid‑October, a 0.4% merchant discount rate (MDR) will be applied to person‑to‑merchant (P2M) payments made through the Unified Payments Interface (UPI) when the transaction amount exceeds ₹2,000. The fee will be capped at ₹300 for payments of ₹75,000 or more, while person‑to‑person (P2P) transfers and transactions by small merchants will remain free of charge.
Background on UPI and the NPCI
Launched in 2016, UPI has become the backbone of India’s digital payments ecosystem, handling billions of transactions and accounting for a growing share of retail payments. The NPCI, a government‑backed non‑profit that operates the country’s interbank payment systems, oversees UPI’s rules and standards. Until now, UPI transactions have been free for both consumers and merchants, a policy that helped accelerate adoption across the country.
Key features of the new MDR framework
The new charge applies only to P2M payments that are above the ₹2,000 threshold. The 0.4% fee is levied on the merchant, not the consumer, and is capped at ₹300 per transaction for amounts of ₹75,000 and above. A separate flat ₹5 levy will be imposed on certain categories such as rail ticketing and fuel payments, as noted by several outlets.
Small merchants – defined by the NPCI as those with an annual turnover below a specified limit (the exact figure was not disclosed in the reports) – are exempt from the fee. Likewise, all P2P transfers, which constitute the majority of UPI activity, continue to be free.
"UPI will no longer be free for all merchant transactions above ₹2,000, with a 0.4% fee capped at ₹300," the NPCI said in its announcement, reported by multiple Indian business dailies.
Impact on merchants and consumers
Industry analysts anticipate that the fee will primarily affect larger merchants and high‑ticket‑size transactions, such as e‑commerce platforms, utility bill payments and travel bookings. Small retailers, street vendors and gig‑economy workers – who together account for a sizable share of UPI usage – will continue to enjoy fee‑free processing.
Consumers are not expected to see a direct cost increase, as the MDR is borne by the merchant. However, some businesses may choose to pass the charge on to buyers, especially for high‑value purchases. The NPCI has not provided guidance on whether price adjustments are permissible.
Implementation timeline and regulatory notes
Most outlets, including The Hindu, The Economic Times and Livemint, state that the fee will take effect on October 15, 2024. A few reports, such as those from The Times of India, mention an October 1 start date, indicating a minor discrepancy in the announced rollout schedule.
The NPCI clarified that the MDR framework aligns UPI’s fee structure with that of card networks, which already charge merchants a similar percentage. By introducing a modest, capped fee, the regulator aims to create a sustainable revenue model for the platform without eroding the cost advantage that has driven its rapid diffusion.
Stakeholders, including merchant associations and fintech firms, have been invited to provide feedback during a consultation period that runs until the end of September. The NPCI indicated that any adjustments arising from this dialogue will be communicated before the fee becomes operational.
