The government is set to closely monitor the implementation of Merchant Discount Rate (MDR) charges on certain UPI transactions, with a focus on ensuring that the additional cost does not ultimately reach consumers.
The new MDR framework will apply to selected person-to-merchant (P2M) UPI transactions above 2,000. While the changes introduce charges for certain merchant payments, person-to-person (P2P) UPI transfers will continue to remain free.
Officials are also expected to engage with banks, payment companies and other stakeholders to track how the new charges are being implemented.
Which UPI Transactions Will Attract MDR?
Under the revised framework, an MDR of 0.4% will apply to eligible P2M transactions above Rs 2,000.
For certain essential categories, such as fuel, a flat charge of Rs 5 will apply to specified transactions.
However, the new charges will not affect every UPI payment. The broad structure is:
- P2P UPI transactions: No MDR
- Merchant payments up to Rs 2,000: No MDR
- Eligible P2M transactions above Rs 2,000: 0.4% MDR
- Specified essential categories: Flat Rs 5 MDR
- Eligible small merchants: Continue to remain outside the applicable MDR framework
This means the vast majority of everyday UPI payments are expected to remain unaffected.
Government to Keep a Close Watch on Merchant Charges
One of the key concerns surrounding the new MDR structure is whether merchants could try to recover the additional payment-processing cost from customers.
To address this concern, officials plan to monitor the implementation and hold discussions with banks and payment firms. The objective is to ensure that the MDR remains a cost within the payment ecosystem rather than becoming an additional charge on consumers.
This monitoring will be particularly important as businesses adjust to the revised payment-cost structure.
Only a Small Share of UPI Transactions Expected to Be Affected
According to government estimates, around 96% of merchant UPI transactions are expected to remain unaffected by the revised framework.
The transactions that could attract MDR represent only a relatively small portion of overall UPI activity. This is intended to preserve the convenience and widespread adoption of digital payments while creating a revenue stream for participants in the UPI ecosystem.
The government has also indicated that the revenue generated through MDR could support the broader digital-payment infrastructure, including banking and payment access in underserved areas.
Will Customers Have to Pay for UPI?
The introduction of MDR does not mean that UPI users will have to pay a general transaction fee.
For consumers, the important distinction is between P2P transfers and merchant payments. Sending money to another individual will continue to remain free, while merchant payments within the applicable limits will also remain outside the MDR charge.
The government’s monitoring mechanism is aimed at preventing merchants or intermediaries from simply adding the MDR amount to a customer's bill.
Concerns Among Merchants
While the government expects the new framework to support the long-term sustainability of digital payments, some businesses have expressed concerns about the additional cost.
For merchants operating with tight profit margins, even a small payment-processing charge can add to their operating expenses. Whether businesses absorb the cost or look for ways to recover it will therefore remain an important issue after the new system takes effect.
The government's proposed monitoring could play a role in ensuring that consumers do not face unexpected charges when choosing UPI as their payment method.
What UPI Users Should Know
For ordinary UPI users, the key takeaway is simple: UPI is not becoming chargeable across the board.
P2P payments remain free, and a large majority of merchant transactions are also expected to remain outside the MDR framework. The new charges primarily concern specified higher-value merchant transactions.
The focus now will be on how banks, payment companies and merchants implement the changes and whether consumers continue to enjoy the seamless UPI experience without additional charges.
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