Merchant Discount Rate (MDR) framework

Why in News?

A new Merchant Discount Rate (MDR) framework for UPI transactions was announced on 15 September 2026 and is scheduled to come into effect from 15 October 2026. Under the framework, an MDR of 0.4% will apply to eligible merchant payments above ₹2,000, with certain exceptions. The charge is intended to be borne within the merchant payment ecosystem rather than by customers making UPI payments.

About Merchant Discount Rate (MDR)

MDR is a fee charged to merchants for facilitating digital payments and is shared among entities involved in the payment ecosystem, including banks, payment service providers and third-party applications. The government has advised banks to ensure that merchants do not pass the MDR cost on to customers.

The new MDR will apply only to person-to-merchant (P2M) transactions above ₹2,000. Person-to-person (P2P) transactions will remain outside the levy, irrespective of the transaction value. According to NPCI, the new framework will provide acquiring banks, payment aggregators, fintech applications and corporate accounting platforms time to update their software and billing systems.

The framework is expected to generate around ₹15,000 crore through the 0.4% levy on eligible merchant transactions. The amount will be shared among banks, payment applications and payment service providers.

Until now, the government has supported low-value UPI payments to small merchants through the Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI Transactions (P2M). Under this scheme, the incentive was capped at 0.15% of the transaction value for small merchants with annual turnover below ₹50 crore. The government paid around ₹8,730 crore between FY2022 and FY2025 under the scheme.

Transactions above ₹2,000 constitute only about 4% of P2M transactions by volume, but account for around 67% of their total value. The scale of UPI adoption is reflected in the fact that UPI processed approximately 2,451 crore transactions worth ₹29.9 lakh crore in August 2026 alone.

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