Government, payment gateways explore safeguards against UPI fee pass-through to consumers
The government is discussing measures with payment gateways to stop merchants from passing potential UPI MDR charges to consumers. Monitoring is set to begin October 15, while a proposal would direct 5% of MDR collections to a fund supporting UPI adoption among small merchants.
What happened
Government is engaging payment aggregators to prevent merchants passing UPI MDR charges to consumers. It will monitor merchant practices from Oct 15 and plans a
Key facts
- 0.4% MDR
- transactions above Rs 2,000
- Oct 15 monitoring start
- 5% of MDR collections for dedicated fund
Why this matters
Payment gateways and acquirers should prioritize partnerships that bundle compliance, merchant-cost tools, and small-business UPI adoption as the proposed MDR-fund framework develops.
What to watch
- Formal notification confirming whether MDR applies, the exact threshold, covered merchant categories, and implementation date.
- Government guidance defining prohibited pass-through, including whether differential discounts, minimum purchase rules, or convenience fees are treated as circumvention.
- October 15 monitoring methodology, complaint channels, penalties, and early enforcement actions against merchants or gateways.
- Details of the proposed 5% MDR adoption fund: contributor base, eligibility, payout structure, and whether it offsets merchant acceptance costs.
- Gateway and acquirer pricing announcements, especially enterprise-versus-SMB rate cards and contractual allocation of MDR.
- UPI transaction mix changes above Rs 2,000, checkout conversion, payment-method steering, and changes in card/EMI share for high-value purchases.
- Merchant association responses and litigation or lobbying that could delay, narrow, or reverse the proposal.
- Model UPI payment-cost exposure by basket size, category, and merchant cohort; isolate GMV above Rs 2,000 and estimate margin impact under 0.2%, 0.4%, and subsidized-MDR cases.
- Audit checkout, invoices, POS scripts, and seller contracts for explicit or implied UPI surcharges before October 15 monitoring begins.
- Prepare compliant cost-mitigation levers: gateway repricing negotiations, UPI transaction routing optimization, bank-funded offers, loyalty incentives, and category-level discount redesign.
- Avoid UPI-specific consumer fees; test neutral payment incentives that do not create evidence of prohibited pass-through.
- Prioritize small-seller enablement if fund eligibility emerges, including onboarding, QR deployment, reconciliation tools, and working-capital offers.
- Track whether high-ticket merchants reduce UPI promotions or steer customers toward cards/EMI, creating an opening for card issuers and BNPL providers.