India to levy 0.4% UPI merchant fee on payments above ₹2,000 from 15 October
The new MDR regime exempts P2M payments below ₹2,000 and merchants receiving up to ₹1 lakh a month, while creating a potential ₹20,600 crore annual revenue pool by FY28. The change could reshape merchant acceptance economics, app competition and investment in payment security.
What happened
India will introduce a 0.4% MDR on UPI merchant payments above ₹2,000 from 15 October, creating payment-provider revenue while exempting most small purchases
Key facts
- 0.4% MDR on UPI merchant payments above ₹2,000
- P2M payments below ₹2,000 exempt
- Small vendors receiving up to ₹1 lakh monthly exempt
- PhonePe and Google Pay: 78.3% of transaction volume and 81.8% of value
- Estimated annual industry revenue pool: ₹20,600 crore by FY28
- 5% of collections earmarked for Small Merchant Development Fund
- 41% of 32,796 surveyed businesses unwilling to absorb MDR
- UPI fraud: 1.63 million incidents involving ₹1,226.37 crore in FY26 through 15 March
Why this matters
Payments, fintech and fraud-security acquirers should prioritise targets with enterprise-merchant distribution, UPI processing capabilities and tools that help retailers offset or optimise the new MDR cost.
What to watch
- Final notification language on whether the fee is charged to merchants, payment aggregators, banks or consumers.
- Clarification of the ₹1 lakh monthly merchant exemption calculation, aggregation rules and treatment of marketplace sellers.
- Category exclusions for essential goods, fuel, government payments, education, healthcare, utilities or transit.
- Merchant acceptance behavior near the ₹2,000 threshold, including split-ticketing and alternative-payment prompts.
- UPI app and bank announcements on MDR rebates, enterprise pricing and merchant incentive programs.
- Growth in card, cash-on-delivery, bank-transfer and EMI usage for baskets above ₹2,000.
- Evidence of retail price pass-through, merchant-association lobbying or parliamentary/policy review.
- Changes in government subsidy support for UPI infrastructure and payment-service providers.
- Model the effective merchant cost by category, ticket size and monthly payment volume rather than applying 0.4% uniformly.
- Review checkout flows for transactions around ₹2,000 and prepare compliant anti-steering guidance for store staff and digital channels.
- Renegotiate acquiring, gateway and UPI app contracts, focusing on MDR pass-through, fraud liability, settlement timing and volume rebates.
- Evaluate whether higher-ticket UPI transactions can be offset through lower card acceptance costs or increased use of account-to-account payment routing.
- Prioritize payment-security and reconciliation investments, as fee-funded providers are likely to raise merchant-service standards and fraud controls.
- Prepare customer messaging and pricing governance to avoid visible surcharge practices that could damage conversion or invite scrutiny.