India proposes ending zero-MDR rule for UPI, raising a potential cost for large merchants
The Finance Ministry has proposed removing the zero-MDR mandate on UPI and RuPay debit-card payments. Consumers are expected to remain fee-free, but merchant charges, rates and covered transaction categories would be notified only after the amendment is passed.
What happened
Finance Ministry has proposed removing the zero-MDR mandate for UPI, potentially shifting payment-processing costs to merchants while keeping consumers
Key facts
- 0% MDR on UPI and RuPay debit-card transactions since 2020
- UPI MDR of 0.3% for large merchants proposed by Payments Council of India
- ₹1,500 crore government incentives
- ₹10,000 crore estimated annual cost to maintain and expand UPI
- 88% of India's digital transactions are UPI-based
- 23 billion-plus monthly UPI transactions
- around ₹30 lakh crore monthly UPI transaction value
- 600 million additional users forecast
- 100-150 billion projected monthly transactions
- 23.66 billion UPI transactions in July 2026
- ₹29.88 lakh crore UPI transaction value in July 2026
- 19% annual value growth in July 2026
Why this matters
The policy could increase the strategic value of payments infrastructure, merchant-acquiring capabilities and UPI-adjacent partnerships as retailers seek to manage new processing costs.
What to watch
- Publication of amendment text defining whether MDR is mandatory, optional, capped, or merchant-category-specific.
- Finance Ministry or RBI notification of MDR rates, transaction thresholds, merchant-size definitions, and implementation dates.
- Whether RuPay debit and UPI receive identical treatment or separate pricing structures.
- Government commitments to continue or replace incentive subsidies for banks, PSPs, and UPI infrastructure.
- Statements from major merchant associations, e-commerce platforms, banks, NPCI, and payment aggregators on pass-through risk.
- Changes in UPI transaction growth, average ticket size, acceptance expansion, and bank/PSP economics ahead of implementation.
- Any carve-outs for P2M small-value payments, government services, fuel, utilities, education, healthcare, or essential retail.
- Model UPI and RuPay debit volumes by store format, ticket size, category margin, and acquiring partner to quantify potential basis-point exposure.
- Prepare payment-routing and tender-steering options for high-cost use cases while preserving a fee-free consumer checkout experience.
- Reopen acquirer, PSP, and bank negotiations early; seek volume-based MDR caps, category exclusions, and service-level commitments.
- Review retailer-funded loyalty, cashback, and UPI promotion economics, which may become less attractive if merchants also pay transaction charges.
- Join industry representation efforts focused on exemptions for small-ticket, essential-goods, and micro-merchant transactions.
- Update pricing and margin-contingency plans for categories where payment costs cannot be absorbed easily, especially grocery, value retail, and marketplace orders.