UPI merchant fees above ₹2,000 could reshape retailers’ digital-payment costs
From 15 October, merchant UPI payments above ₹2,000 will attract MDR of up to 0.4%, with a ₹300 cap for transfers of ₹75,000 or more. The move creates a new checkout-cost line for higher-ticket retailers while directing much of the projected FY2028 fee pool to banks and payment providers.
What happened
Unified Payments Interface (UPI) · India’s UPI merchant fee could create a ₹27,000-crore annual payments revenue pool by FY2028. MDR of up to 0.4% on merchant
Key facts
- ₹27,000 crore ($2.8 billion) projected annual revenue pool by fiscal 2028
- Nearly ₹200 billion projected payments-ecosystem profit
- Banks projected to retain about 60%, or ₹120 billion
- MDR up to 0.4% on UPI merchant payments above ₹2,000
- ₹300 fee cap for transfers of ₹75,000 or more
- Transactions above ₹2,000 were 67% of August merchant-payment value and 4% of volume
- Banking-system profits could rise about 3%
- SBI could capture about 25% of an estimated ₹80 billion issuer pool
Why this matters
Payments, acquiring and fintech targets with exposure to high-value UPI merchant flows could gain a meaningful new revenue pool, making distribution and merchant-acquisition assets more strategic.
What to watch
- Final notification language, effective date, merchant-category exclusions and whether MDR applies to all merchant UPI instruments or only specified funding sources.
- Actual acquirer pricing versus the stated 0.4% ceiling, including gateway fees, GST and settlement charges.
- UPI transaction-value distribution around ₹2,000 and evidence of order splitting or payment-method switching.
- Card, BNPL and EMI approval rates and promotional subsidies for high-ticket purchases.
- Large retail chains announcing payment-specific discounts, convenience fees or UPI incentive reductions.
- PSP and bank earnings disclosures showing merchant-fee growth, incentive spend and concentration of revenue from large-ticket merchants.
- Regulatory response if merchant steering, surcharging or consumer complaints rise.
- Model blended payment cost by ticket band, category, channel and UPI share; isolate exposure above the ₹2,000 threshold.
- Audit checkout flows for compliant payment steering opportunities, including card EMI, pay-later, bank-transfer and wallet alternatives for high-value orders.
- Renegotiate acquiring and payment-gateway contracts around MDR caps, settlement speed, refunds, chargeback support and volume-linked rebates.
- Revise promotion design so high-ticket UPI cashback is funded only where conversion uplift exceeds incremental MDR.
- Test threshold effects: basket splitting, partial payments, prepaid deposits and customer migration to alternate tenders.
- Prepare store and customer-service scripts to prevent payment-choice friction and abandonment at POS or checkout.