UPI to charge merchants 0.4% on P2M payments above Rs 2,000 from October 15
Consumers will remain fee-free under NPCI’s new UPI merchant-discount-rate framework. Charges are capped at Rs 300, while railways, telecom, insurance and fuel payments above Rs 2,000 face a flat Rs 5 fee.
What happened
NPCI said merchants will pay 0.4% MDR on UPI P2M payments above Rs 2,000 from October 15, while consumers remain fee-free. The framework caps charges, offers
Key facts
- 0.4% MDR on P2M UPI transactions above Rs 2,000
- MDR capped at Rs 300 for transactions of Rs 75,000 and above
- 95%+ of P2M transactions are Rs 2,000 or less
- Rs 5 flat MDR for railways, telecom, insurance and fuel transactions above Rs 2,000
- 0.02% MDR for capital-market payments, capped at Rs 300
- 5% of MDR collections to fund small-merchant adoption
- Rs 29.8 lakh crore UPI transaction value in August
- Estimated annual UPI operating cost: Rs 20,000 crore
- Credit-card processing costs: 1%-3%
- Debit-card MDR: 0.4%-0.9%
Why this matters
Evaluate partnerships or acquisitions in merchant acquiring, payment orchestration and UPI reconciliation that can help retailers optimize routing, absorb MDR costs and manage category-specific fee rules.
What to watch
- NPCI circular details on applicability, merchant-category-code treatment, tax treatment, exemptions, and whether aggregators can pass through fees differently.
- Whether banks, PSPs, payment aggregators, and large marketplaces absorb part of the MDR through promotional rebates or tiered merchant pricing.
- UPI transaction value and volume growth split by ticket size before and after October 15, with particular attention to transactions just above and just below Rs 2,000.
- Growth in card EMI, RuPay credit-on-UPI, BNPL, net banking, and direct bank-transfer usage for high-AOV retail categories.
- Evidence of merchant-led minimum purchase thresholds, tender steering, cash discounts, or explicit surcharge attempts.
- Government response if merchant acceptance slows, especially ahead of major festive sales or if small-business groups mobilize.
- Model tender-level margin impact by basket band, especially Rs 2,000-Rs 10,000 transactions where the 0.4% levy is most material.
- Add checkout routing rules that prioritize card EMI, co-branded cards, BNPL, bank transfer, and loyalty-funded payment offers for high-value orders without making UPI unusable.
- Renegotiate PSP and acquirer contracts for blended MDR, settlement speed, refunds, chargeback handling, and online-offline reconciliation rather than accepting headline pricing.
- Reprice promotions selectively: shift cashback and payment-funded discounts toward tenders that offset MDR or generate higher repeat-purchase and data value.
- Prepare merchant communications and POS staff scripts to avoid explicit UPI surcharges or friction that could harm conversion and regulatory compliance.
- Track category exposure separately for fuel, telecom, insurance and rail-related payments, where the flat Rs 5 charge may reshape bill-payment routing more than retail checkout behavior.