UPI MDR from 15 October: How merchant charges compare with credit, debit card fees and credit-linked UPI

The National Payments Council of India (NPCI) has announced a merchant discount rate (MDR) on select UPI transactions conducted from person to merchant, effective from 15 October.

The revised framework, published on its official website on Tuesday, has kept 95% of low-value UPI transactions below ₹ 2,000 and small merchant transactions (P2PM) completely free.

While Union Finance Minister Nirmala Sitharaman clarified that consumers would continue to use UPI free of charge, some confusion persisted. The latest framework reiterates that consumers will transact free of cost using UPI , as they have been doing until now.

“Consumers making payments through UPI will not face any charges. Individual account holders can continue using UPI applications for all routine, daily expenses without worrying about any charges. The MDR policy ensures that UPI remain free and accessible for all citizens across India,” NPCI said.

For certain transactions above ₹ 2,000, a flat MDR of ₹ 5 will be applicable. Other person-to-merchant (P2M) UPI transactions above the ₹ 2,000 threshold will attract an MDR of 0.4%.

The 0.4% charge will be capped at ₹ 300 per transaction, thereby limiting the fee applicable to higher-value payments.

The categories subject to the flat ₹ 5 charge include payments for Indian railways, telecom services, insurance and fuel when the transaction value exceeds ₹ 2,000.

A separate, much lower MDR of 0.02% will apply to capital-market-related UPI payments. This category includes transactions involving mutual funds, securities, stock brokers and dealers. In such cases, too, the MDR will also be capped at ₹ 300 per transaction.

The initiative aims to expand UPI acceptance among small merchants while ensuring that consumers making low-value payments are not impacted.

NPCI said that UPI MDR is structured to be much lower than all traditional card-based transaction fees.

Standard credit card MDRs typically range from 1.5% to 2.5% per transaction, while debit card MDRs are capped up to 0.90%, according to the payment body's FAQs section available online.

By setting the baseline UPI MDR at 0.4% on transactions above ₹ 2,000 and capping it at ₹ 300 for high-value purchases, UPI remains the most affordable digital payment acceptance tool for commercial enterprises, NPCI said.

It also maintained that this cost difference will help merchants lower their payment processing expenses while accepting digital transactions.

Credit card-linked UPI payments will not fall under the new 0.4% MDR regime, the government has clarified, offering relief to consumers who use credit cards or linked credit facilities to make UPI payments.