India may allow UPI MDR on payments above Rs 2,000, reshaping merchant economics

Parliament has removed the ban on charging merchants for UPI acceptance, opening the door to a proposed 0.3%-0.5% MDR on larger transactions. Small-ticket retail payments are expected to be protected, while PhonePe and Google Pay also face NPCI’s December 2026 market-share cap deadline.

— Source published Sat, 22 Aug, 2026, 13:02 IST · First seen Sat, 22 Aug, 2026, 13:29 IST · Source Business Today · Latest

What happened

Unified Payments Interface (UPI) · Parliament removed the ban on charging merchants for UPI acceptance, enabling a possible MDR on large payments. Any fee is

Key facts

  • Potential MDR of 0.3%-0.5% for merchants on UPI payments above Rs 2,000
  • Average merchant UPI payment: Rs 606 in July 2026
  • 14.97 billion UPI transactions in July 2026
  • Merchant UPI value: Rs 98.08 lakh crore in the year to July 2026
  • Hypothetical 0.3% fee on all merchant UPI value: about Rs 29,400 crore
  • PhonePe UPI share: 46.2%
  • Google Pay UPI share: 32.5%
  • NPCI app market-share cap: 30%

Why this matters

Payments incumbents, banks, and retail-tech buyers should evaluate partnerships or acquisitions that strengthen merchant acquiring and value-added services as higher-value UPI acceptance becomes monetizable.

What to watch

  • Final notification specifying transaction threshold, MDR rate, merchant categories, effective date and whether fees apply to P2M only.
  • Rules on merchant surcharging, cash discounts, receipt disclosure and consumer protection.
  • Whether MDR is borne by merchants, consumers, banks, PSPs or subsidized partly by government.
  • NPCI guidance and enforcement milestones ahead of the December 2026 third-party app market-share cap deadline.
  • Merchant association responses, especially from organized retail, ecommerce, travel, healthcare and electronics sellers.
  • Changes in UPI average ticket size, high-value transaction growth and payment-method mix at large merchants.
  • PSP pricing announcements for gateway, settlement, loyalty, credit-on-UPI and merchant analytics products.
  • Segment UPI payment data by order value, category, channel and store format to quantify exposure above Rs 2,000.
  • Model margin impact at 0.3%, 0.4% and 0.5% MDR, including the effect of GST and potential payment-gateway pass-through.
  • Review checkout, POS and invoicing capabilities for compliant payment-method messaging, tender steering and surcharge handling if permitted.
  • Renegotiate acquiring and PSP contracts to separate MDR, gateway fees, settlement terms, fraud tools and value-added-service charges.
  • Test high-ticket incentives for debit cards, account-to-account bank transfer, EMI, retailer financing and closed-loop wallets without degrading UPI conversion.
  • Prepare for PSP concentration changes as PhonePe and Google Pay respond to NPCI market-share-cap requirements through user migration, partnership and routing strategies.