Merchant Discount Rate (MDR) Framework for UPI

Prelims: Current events of national and international importance | Economy

Why in News?

The Ministry of Finance notified a revised Merchant Discount Rate (MDR) framework for the Unified Payments Interface (UPI).

Merchant Discount Rate (MDR)

Definition - A fee levied on merchants for processing digital payment transactions.
Ecosystem Mechanism - The collected MDR is shared among acquiring banks, issuing banks, payment service providers (PSPs), and third-party app providers (TPAPs) to sustain digital payment infrastructure, fraud prevention, and cybersecurity.

Key Highlights of the New MDR Framework

The framework introduces a nominal MDR on select large-value Person-to-Merchant (P2M) transactions starting October 15, 2026.
Implemented via - National Payments Corporation of India (NPCI) guidelines.
Zero Charges - Person-to-Person (P2P) transfers (which constitute ~37% of UPI volume and ~70% of value) remain 100% free for consumers, irrespective of the transaction amount.
P2M transactions valued at up to Rs. 2,000 will attract Zero MDR.
Approximately 96% of all UPI merchant transactions fall below this threshold, shielding micro and small businesses.
Nominal Rate on Large-Value P2M Payments
- For P2M transactions exceeding Rs.2,000, a standard MDR of 0.4% applies.
- Capping on High-Value Transactions- For large transactions of Rs.75,000 and above, the MDR is strictly capped at a maximum of Rs.300.

MDR Framework

Concessional Rates for Specific Sectors
- Essential Sectors (Flat Rs.5)- Critical public utility services (Railways, telecom, insurance, fuel, agricultural inputs) pay a flat MDR of Rs.5 per transaction above Rs.2,000.
- Capital Markets (0.02%)- Payments towards stockbrokers, securities, and mutual funds attract a low MDR of 0.02% (capped at ₹300) to promote retail participation.
Small Vendor Exemption - Small street vendors receiving up to Rs.1 lakh per month via QR codes under the Person-to-Person-Merchant (P2PM) classification remain completely exempt from MDR.
Strict Ban on Consumer Surcharges- UPI apps and merchants are prohibited from charging "platform fees" or passing on MDR costs to end consumers.

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