NEW DELHI — The National Payments Corporation of India (NPCI) has released updated guidelines introducing a Merchant Discount Rate (MDR) for select Unified Payments Interface (UPI) Person-to-Merchant (P2M) transactions. The new commercial framework takes effect on October 15, 2026, aiming to build a self-sustaining financial model for UPI’s underlying technical infrastructure, cybersecurity, and innovation.
Key Highlights & Policy Rules
- Zero Fees for Consumers: Everyday citizens will experience no change. All Person-to-Person (P2P) transfers (e.g., sending money to family, friends, or self-transfers) and consumer-facing P2M transactions remain 100% free of charge.
- Standard P2M Transactions: A baseline MDR of 0.4% will apply to merchant transactions exceeding ₹2,000. To protect large enterprise purchases, the fee is capped at ₹300 per transaction for values of ₹75,000 and above.
- Micro & Small Merchant Protection: Micro-vendors under the Person-to-Person-Merchant (P2PM) category—collecting up to ₹1 lakh per month via QR code—are completely exempt from MDR. Over 95% of daily UPI transactions fall under ₹2,000 and will carry zero charges.
- Concessions for Key Sectors: Special low-margin sectors including fuel stations, Indian Railways, utility bills (electricity/water), and insurance premiums will incur a flat MDR of ₹5 per transaction above ₹2,000 instead of the 0.4% variable rate.
- Capital Market Transfers: Fund transfers for mutual fund investments, equity buying, and stockbroker wallet top-ups will attract a reduced MDR of 0.02% (capped at ₹300).
UPI MDR Rate Structure
| Transaction Category | Threshold Value | Applicable MDR | Fee Ceiling (Cap) | Paid By |
|---|---|---|---|---|
| Person-to-Person (P2P) | Any Amount | 0% (Free) | N/A | Free |
| Micro Merchants (P2PM) | Up to ₹1 Lakh/month | 0% (Free) | N/A | Free |
| General Retail (P2M) | Up to ₹2,000 | 0% (Free) | N/A | Free |
| General Retail (P2M) | Above ₹2,000 | 0.40% | ₹300 per transaction | Merchant |
| Fuel, Utilities, Insurance & Telecom | Above ₹2,000 | Flat ₹5 | ₹5 per transaction | Merchant |
| Capital Markets (MFs, Brokers) | Any Amount | 0.02% | ₹300 per transaction | Entity |
Consumer Safeguards & Ecosystem Funding
The regulation explicitly forbids merchants from passing MDR fees onto buyers. Additionally, UPI app providers are prohibited from levying platform charges or convenience fees on users.
Proceeds generated from the MDR framework will fund a Dedicated Small Merchant Fund to accelerate digital payment expansion in Tier-3 to Tier-6 regions, North-Eastern states, and rural centers. The remaining funds will support banks and fintech acquirers in upgrading server bandwidth, AI-driven fraud detection, and multi-tiered cybersecurity monitoring.
