India may allow MDR on UPI and other electronic payments outside a negative list

A proposed legal change could let the government apply merchant discount rates to electronic payment modes not placed on a notified negative list. UPI may be affected, raising acceptance-cost questions for merchants as policymakers consider thresholds or turnover-linked fees.

— Source publishedTue, 4 Aug, 2026, 20:22 IST·First seen Tue, 4 Aug, 2026, 20:27 IST·Source The Hindu BusinessLine

What happened

India may introduce merchant discount rates for electronic payment modes outside a government-notified negative list, potentially including UPI. The change

Key facts

  • UPI processes nearly 23 billion transactions monthly
  • Credit-card MDR is typically about 1.5%
  • Debit-card MDR is up to 0.9%
  • UPI investment costs have increased nearly 300% over the past 12–24 months
  • UPI penetration opportunity estimated at nearly 3x
  • Target penetration cited at 90%

Why this matters

Reassess partnerships and acquisition targets in UPI acceptance, merchant acquiring and payments infrastructure, where a new MDR regime could reshape unit economics and bargaining power.

What to watch

  • Text of the proposed legislation and whether UPI is explicitly included, excluded, or left to later notification.
  • Definition and scope of the negative list, including treatment of RuPay, wallets, prepaid instruments, Aadhaar-enabled payments, and cross-border transactions.
  • Any MDR cap, merchant-turnover threshold, transaction-value threshold, or sector-specific exemption.
  • Budget allocations or subsidy mechanisms compensating banks and payment service providers for zero-MDR UPI processing.
  • NPCI, RBI, Ministry of Finance, and DPIIT consultation papers, implementation dates, and industry guidance.
  • Merchant-acquirer pricing changes, QR deactivation rates, cash-discount behavior, and shifts in UPI transaction growth after policy clarification.
  • Large retailer and e-commerce platform responses, especially attempts to steer customers toward preferred payment methods or negotiate direct acquiring rates.
  • Model MDR exposure by merchant size, transaction ticket, payment rail, and category rather than assuming a uniform UPI fee.
  • Prepare tiered acquiring and QR-acceptance pricing that preserves free or subsidized acceptance for micro-merchants while monetizing enterprise merchants.
  • Renegotiate merchant contracts to include regulatory pass-through clauses, routing flexibility, and pricing-review provisions.
  • Build merchant communications around total acceptance economics, including settlement speed, reconciliation, fraud reduction, and loyalty conversion, to limit cash reversion.
  • Increase advocacy through industry bodies for turnover thresholds, low-ticket exemptions, capped MDR, and continued government support for public digital-payment infrastructure.
  • Track whether competitors use MDR as a reason to bundle value-added services such as credit, analytics, loyalty, and reconciliation.

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