The date for implementing the Merchant Discount Rate (MDR) for UPI is approaching, but the payments industry has not yet completed preparations for this change. It is planned that starting October 15, 2026, an MDR rate of 0.4 percent will apply to certain UPI transactions exceeding 2000 rupees. Meanwhile, representatives from trade organizations, fintech companies, and payment systems are calling for this implementation to be postponed until January 2027. According to sources, these demands have been submitted to the National Payments Corporation of India (NPCI).
The industry points out that the rules, policies, and scope of various types of UPI payments, including the relevant MDR rates, remain insufficiently clear. Sources report that discussions on this matter are ongoing with the Ministry of Finance, and NPCI may make a decision within the next two days.
Last month, the UPI Governing Council set the MDR rate at 0.4 percent, which is 40 basis points, for some transactions over 2000 rupees. MDR is a commission paid by the merchant to the respective banks or parties associated with the payment system for processing the digital payment. For example, for a transaction of 2000 rupees, the commission will be 8 rupees, and for a transaction of 10,000 rupees, it will be 40 rupees. However, the main issue for the payments industry remains which specific transactions will be subject to this charge and what rate will apply in each category.
The payments industry argues that UPI lacks a unified fee structure similar to that used in card payments. Separate rates are established for operations such as utility bill payments, loan repayments, and capital market trades. There is confusion among companies and traders regarding these different categories and rules, prompting many organizations in the payments industry to request additional time to prepare before the new system is introduced.
The effective date of the new system falls during the country's festive shopping season. One source reported that several bodies in the payments industry and traders have approached NPCI requesting the MDR implementation date be moved until after the holiday season. The industry is concerned that costs for entrepreneurs may rise during festive sales amid inflationary pressures. There is also a fear that some traders might try to pass the burden of MDR onto customers.
In card payments, each merchant has their own category, and network operators process and verify transactions based on this category. MDR rates for cards are also organized relatively uniformly. The situation in UPI is different: a separate system of rules and charges has been developed for different types of payments. Among these are payments that cannot be made using a card. Before the widespread adoption of UPI, many payments related to loan repayments or capital markets were conducted through channels such as internet banking, IMPS, NEFT, and RTGS, and they had a separate fee structure.
Questions also arise regarding MDR for loan repayments. In some cases, banks charged fees from both the sender and the receiver. Capital market proponents argue that depositing funds into a brokerage account is analogous to a person-to-person (P2P) payment, so brokerage firms should not be subject to MDR as they do not derive direct profit from such transactions.
Questions also arise concerning manual loan repayments. With small amounts, auto-debit may fail due to insufficient funds in the customer's bank account at the specified time. Subsequently, the customer manually makes the payment. This raises a new question: if a manual payment is considered a financial institutional payment, it may be subject to an MDR of 0.4 percent. However, NPCI has also clarified that a fixed fee of 5 rupees is provided for such payments. Now, banks and payment aggregators face the task of distinguishing between loan repayment and a regular financial service. This is why there is a request for greater clarity in the rules before the new system comes into effect.
Currently, the main question is whether MDR will be introduced on October 15 or postponed until January 2027. Industry requests have been submitted to NPCI, and discussions with the Ministry of Finance are ongoing. If NPCI does not change the date, MDR will be applied to relevant UPI payments by merchants exceeding 2000 rupees starting October 15, according to the established rules. If the requests are accepted, traders and payment companies will be given more time to prepare. All attention is currently focused on NPCI's decision within the next two days to determine whether the October 15 deadline will remain unchanged or if a postponement until January 2027 will be granted regarding MDR for UPI.