Government asks banks to stop merchants passing UPI MDR charges to consumers
A new UPI framework would retain zero MDR on merchant payments up to Rs 2,000 while applying 0.4% MDR to specified P2M transactions above that threshold from October 15. The government expects 96% of P2M payments to remain unaffected and has asked banks to protect consumers from fee pass-through.
What happened
Government has advised banks to prevent merchants from passing new UPI MDR charges to consumers. The framework retains zero fees for most transactions, while
Key facts
- 0.4% MDR on specified person-to-merchant UPI transactions above Rs 2,000
- Zero MDR for merchant payments up to Rs 2,000
- 96% of P2M transactions expected to remain unaffected
- 18% GST on MDR for eligible transactions
- Debit and credit card MDR broadly 1-3%
- UPI subsidy eligibility for merchants with annual turnover below Rs 50 crore
Why this matters
Prioritize bank, PSP and payment-orchestration partnerships that can lower effective MDR on higher-value UPI transactions and support compliant merchant cost management.
What to watch
- Final notification defining 'specified' P2M transactions, merchant categories, exclusions, and treatment of online versus offline payments.
- Bank, NPCI, RBI, or consumer-affairs guidance on what constitutes prohibited pass-through or indirect surcharge.
- Acquirer and payment-aggregator merchant pricing announcements ahead of October 15.
- Merchant behavior at the threshold: order splitting, altered basket composition, UPI transaction caps, or migration to cards/EMI.
- Consumer complaint volumes and enforcement actions against merchants, aggregators, or banks.
- Changes in UPI share for transactions above Rs 2,000 relative to card and EMI payment share.
- Segment UPI P2M volume, margin, and basket size around the Rs 2,000 threshold by category, store format, and channel.
- Model 40 bps MDR exposure net of existing acquiring costs, including impact on low-margin electronics, grocery bulk baskets, pharmacy, and marketplace orders.
- Audit checkout, invoices, merchant communications, and partner contracts for any fee language or indirect pass-through that could trigger enforcement.
- Test compliant tender steering: incentives for cards, EMI, loyalty redemption, or bank transfer on high-value baskets without penalizing UPI users.
- Engage acquirers and payment aggregators early on eligibility definitions, implementation timing, settlement treatment, dispute handling, and merchant pricing.