Mumbai: Consumers will continue paying nothing for UPI transfers even as India introduces a new merchant fee structure designed to fund the digital payments network. From October 15, 2026, selected merchant transactions above Rs 2,000 will attract a Merchant Discount Rate of up to 0.4 per cent.
Who Bears The Charge?
The National Payments Corporation of India said the revised MDR will be imposed on eligible Person-to-Merchant payments, rather than customers. Merchants accepting qualifying higher-value transactions will bear the processing cost, capped at Rs 300 per payment.
For railways, telecom services, insurance and fuel, the framework replaces the percentage-based levy with a flat charge of Rs 5 on transactions exceeding Rs 2,000.
Everyday Payments Untouched
Routine UPI usage will remain largely insulated. Person-to-Person transfers will remain free, while merchant payments worth Rs 2,000 or less will stay outside the MDR framework.
NPCI estimates that more than 95 per cent of low-value P2M transactions will remain exempt. Consumers can therefore continue scanning QR codes without paying a fee, irrespective of whether the merchant transaction attracts MDR.
Small Sellers Retain Relief
Small vendors classified under the Person-to-Person Merchant model will also retain zero MDR. The category covers merchants receiving up to Rs 1 lakh monthly through QR-based UPI payments credited directly to bank accounts.
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The protection is aimed at preventing costs from discouraging neighbourhood retailers, street vendors and other small businesses from accepting digital payments.
Funding UPI’s Next Phase
The policy marks a shift towards generating revenue from selected high-value merchant payments while preserving UPI’s free consumer proposition.
MDR collections will be distributed among participants across the UPI ecosystem and used to strengthen infrastructure, cybersecurity, resilience and innovation. A dedicated fund has also been proposed to expand merchant acceptance, particularly in Tier-3 cities and smaller markets.
The balancing act is clear: larger payments will help finance the network, while consumers, small merchants and the majority of everyday transactions remain shielded from charges.
