The Reserve Bank of India has endorsed the new Merchant Discount Rate (MDR) on UPI transactions exceeding Rs 2,000, a strategic move to ensure the long-term sustainability and growth of India's rapidly expanding digital payments ecosystem.
Key Points
- RBI supports the new Merchant Discount Rate (MDR) on UPI transactions over Rs 2,000.
- The 0.4 per cent fee applies to merchant payments exceeding Rs 2,000, effective October 15.
- Person-to-person (P2P) and small person-to-merchant (P2M) transactions below Rs 2,000 remain free for users.
- The policy aims to ensure the long-term sustainability and growth of India's digital payments ecosystem.
- MDR is a charge within the merchant payment ecosystem, not directly on customers.
The introduction of Merchant Discount Rate (MDR) on large-value UPI transactions is an important step towards strengthening the long-term sustainability of India's digital payments ecosystem, the Reserve Bank said on Tuesday following a proposal to levy a 0.4 per cent fee on transactions exceeding Rs 2,000.
"It will help UPI in continuing to scale, innovate and serve consumers and businesses across the country," the Reserve Bank of India (RBI) said in a post on X.
Understanding The New UPI Transaction Fee
Ending nearly six years of fully free UPI payments, the government on Tuesday introduced a 0.4 per cent fee on transfers worth more than Rs 2,000 made to merchants through the platform from October 15, while explicitly ring-fencing everyday person-to-person transactions as well as small payments from any charge.
"Customers will not be required to pay any charge when making such payments through UPI," the finance ministry said in a statement quoting the National Payments Corporation of India circular issued on Tuesday.
"MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments," the statement added.
Ensuring Sustainability Of India's Digital Payments
RBI further said a fair and appropriate distribution of MDR across ecosystem participants will support continued investment in technology, infrastructure and acceptance networks.
This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes, it said.
Importantly, all UPI transactions -- both Person-to-Person (P2P) and Person-to-Merchant (P2M) -- shall remain free for users, it said, adding that P2M UPI transactions below Rs 2,000 will continue to remain free for merchants.
UPI's Global Reach And Remarkable Growth
"RBI remains committed to ensuring that UPI continues to be safe, seamless, affordable, and accessible, while supporting the long-term sustainability and growth of India's world-class digital payments ecosystem," it said.
UPI is operated by the National Payments Corporation of India (NPCI), an initiative of RBI and the Indian Banks' Association. It runs real-time payments between individuals and enables customers to make payments directly to merchants while making purchases.
As far as overseas presence is concerned, UPI is now accepted in 11 countries, with Uzbekistan being the latest entry. The other countries where UPI is accepted are Singapore, the United Arab Emirates, France, Mauritius, Nepal, Bhutan, Qatar, Sri Lanka, Cambodia, and Greece.
UPI, launched on August 25, 2016, has transformed India's digital payments landscape, with transaction value surging from Rs 0.07 lakh crore in FY17 to around Rs 314 lakh crore in FY26, a more than 4,000-fold increase over the decade.
