Proposed UPI MDR could raise payment costs for larger Indian retailers
A proposed UPI merchant-discount-rate regime would levy 0.4% on P2M payments above ₹2,000, capped at ₹300, while exempting QR merchants receiving up to ₹1 lakh a month. The change could materially affect larger retailers’ payment-acceptance economics.
What happened
UPI MDR rules would charge larger merchants 0.4% on P2M payments above ₹2,000 while exempting small QR merchants up to ₹1 lakh monthly receipts. The policy
Key facts
- 0.4% MDR on P2M UPI transactions above ₹2,000, capped at ₹300 per transaction
- ₹5 flat MDR for specified transactions above ₹2,000
- 0.02% MDR for mutual fund, securities and stockbroker payments, capped at ₹300
- Small merchants receiving up to ₹1 lakh monthly via UPI QR are MDR-exempt
- Merchants exceeding ₹1 lakh monthly inward UPI credits for 3 consecutive months move to general P2M MDR
- August 2026 UPI transaction value: ₹298 lakh crore
- P2M transactions above ₹2,000: about 20%, or ₹6 lakh crore
- Theoretical MDR collection: about ₹2,400 crore monthly and ₹29,000 crore annualised
Why this matters
The proposed fee structure could increase the strategic value of payment orchestration, acquiring, and loyalty partnerships that help large retailers reduce UPI acceptance costs or shift mix toward lower-cost tenders.
What to watch
- Formal Ministry of Finance, RBI, NPCI, or payment-network consultation text specifying scope, effective date, merchant definition, and treatment of online payments.
- Whether the ₹2,000 threshold applies per transaction, aggregated order, split tender, refunds, or recurring merchant payments.
- Confirmation of the ₹1 lakh monthly QR-merchant exemption and whether it is assessed per outlet, QR code, legal entity, or beneficial owner.
- Merchant-industry responses from organized retail, e-commerce, restaurant, fuel, travel, and small-business associations.
- Changes in UPI payment mix, especially the share of transactions above ₹2,000 and evidence of transaction splitting or migration to cards.
- Acquirer announcements on MDR pass-through, pricing tiers, surcharge rules, and merchant routing products.
- Model incremental payment-acceptance expense by UPI ticket size, merchant entity, store format, and online versus offline channel.
- Review checkout routing and incentives for transactions above ₹2,000, including card offers, EMI, account-to-account transfers, and proprietary wallet or loyalty payment options.
- Assess supplier and customer contracts for ability to pass through payment costs through pricing, convenience fees, or reduced promotional funding.
- Engage acquirers, PSPs, banks, and industry bodies on implementation mechanics, merchant classification, settlement treatment, and potential volume-based pricing offsets.
- Protect small-seller marketplace economics by confirming whether platform-collected payments, franchisees, and seller-level QR codes qualify for the monthly exemption.
- Increase scrutiny of high-value UPI categories such as electronics, jewelry, travel, furniture, omnichannel orders, and B2B-like purchases.