The National Payments Corporation of India (NPCI) is all set to introduce a new Merchant Discount Rate (MDR) for some UPI payments from October 15. Under the new rule, payments above Rs. 2,000 made to merchants will carry an MDR of 0.4%. MDR is a fee charged for processing a digital payment. The charge will be paid by the merchant and not the customer. The maximum MDR will be Rs. 300 for payments of Rs. 75,000 and above.
However, not all the UPI payments will fall under the new rule. Some special cases, like booking railway tickets, paying fuel prices, insurance premiums, and utility bills above Rs. 2,000, will carry a flat Rs. 5 MDR instead of the 0.4% rate.
UPI payments of up to Rs. 2,000 to any merchant will remain free. Sending money to friends and family will also become free. UPI AutoPay and mandates will not attract the new MDR. The rule also says small merchants receiving up to Rs. 1 lakh a month through UPI QR payments will continue to get zero MDR.
The flat fee gives these sectors a fixed cost instead of linking the charge to the payment amount. This matters for large payments, where a percentage-based MDR could be higher. The finance ministry, in an announcement, mentioned, “Banks have been advised to ensure merchants do not pass MDR charges on to customers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges.”
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The new rules focus on Person-to-Merchant (P2M) payments because businesses use UPI to collect money from customers. Person-to-Person (P2P) payments work differently, as people mainly use them to send money to friends or family.
Keeping P2P transfers free protects one of UPI’s biggest everyday uses. The new MDR brings a cost to selected merchant payments while keeping common person-to-person transfers free. For users, the bigger change may be less about paying a new fee and more about how merchants handle the added cost.