Government asks banks to prevent UPI MDR charges being passed to consumers
Under a framework effective October 15, specified person-to-merchant UPI payments above Rs 2,000 would carry 0.4% MDR, while payments up to that threshold remain zero-MDR. The government has asked banks and trade bodies to ensure merchants do not add the fee to consumer bills.
What happened
Government has asked banks and trader bodies to prevent merchants passing new UPI MDR charges to consumers. Most merchant payments remain free, while specified
Key facts
- 0.4% MDR on specified person-to-merchant UPI transactions above Rs 2,000
- Zero MDR for merchant UPI payments up to Rs 2,000
- 96% of P2M transactions expected to remain unaffected
- 18% GST on MDR for eligible P2M UPI payments
- Debit and credit card MDR broadly ranges from 1% to 3%
- UPI subsidy applies to merchants with annual turnover below Rs 50 crore
Why this matters
Assess payment-partner negotiations and alternative tender strategies for high-value transactions, as compliance limits retailers’ ability to recover new UPI MDR costs from customers.
What to watch
- Formal government notification defining specified persons, merchant categories, exemptions, enforcement and the exact MDR pass-through prohibition.
- Acquirer and bank communications on who bears MDR, pricing revisions, merchant onboarding changes and settlement deductions.
- Trade-association requests for reimbursement, category carve-outs or MDR-cap revisions.
- Changes in the share and value of UPI P2M transactions above Rs 2,000 after October 15.
- Merchant complaints, consumer-protection actions or audits related to explicit or disguised MDR pass-through.
- Tender-mix shifts toward credit cards, debit cards, cash, EMI products and direct bank transfers in high-ticket retail.
- Model gross-margin impact by store format, category and ticket-size band, isolating UPI P2M transactions above Rs 2,000.
- Review payment-acquirer contracts and negotiate MDR caps, volume rebates, settlement terms and routing flexibility before the October 15 effective date.
- Train checkout teams and configure POS flows to prevent explicit customer surcharges while maintaining compliant tender-choice messaging.
- Increase incentives for payment methods with issuer or network-funded rewards, especially for high-ticket categories, without creating a de facto UPI penalty.
- Tighten transaction-splitting policies and monitor whether consumers divide purchases to stay below the Rs 2,000 threshold.
- Use loyalty and CRM data to identify high-value UPI shoppers most likely to change tender or reduce basket size after implementation.