MDR on large value transactions to strengthen UPI's long-term sustainability: RBI

Reserve Bank of India. File Picture

The Reserve Bank of India on Tuesday said the introduction of Merchant Discount Rate (MDR) on large-value Unified Interface Payments (UPI) transactions is an important step towards strengthening the long-term sustainability of India's digital payments ecosystem.

The government on Tuesday had introduced 0.4 per cent charge on UPI payments above Rs 2,000 to merchants and capped the fee at Rs 300 for payments of Rs 75,000 and above, from October 15. The move ended nearly six years of fully free UPI payments, according to news agency PTI.

MDR to help UPI

"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.

The apex bank noted that 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.

The regulator highlighted that all UPI transactions both Person-to-Person (P2P) and Person-to-Merchant (P2M) shall remain free for users, adding that P2M UPI transactions below Rs 2,000 will continue to remain free for merchants.

"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 added.

Operated by National Payments Corporation of India (NPCI), UPI is used for real-time payments between peers or at merchants' end while making purchases.

NPCI, an initiative of the Reserve Bank of India (RBI) and the Indian Banks' Association, is an umbrella organisation for operating retail payments and settlement systems in India.

With presence in over 11 countries including Uzbekistan, Singapore, the United Arab Emirates, France, Mauritius, Nepal, Bhutan, Qatar, Sri Lanka, Cambodia, and Greece, UPI has transformed India's digital payments landscape. In terms of transaction value, it has soared from Rs 0.07 lakh crore in FY17 to around Rs 314 lakh crore in FY26, registering a more than 4,000-fold increase over the decade.

Customers will not be required to pay any charge

The government clarified that the charges are applicable to merchants and said "Customers will not be required to pay any charge when making such payments through UPI," the finance ministry said in a statement quoting the NPCI 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.

According to PTI, MDR of 0.4 per cent will be levied on Person to Merchant transactions above Rs 2,000, while MDR will be capped at Rs 300 per transaction on high-value payments of Rs 75,000 and above. Essential sectors like telecom, insurance, fuel sectors will pay a flat MDR of Rs 5 per transaction, while payments towards mutual funds, and stock brokers will attract an MDR of 0.02 per cent, capped at Rs 300.

However, small merchants receiving up to Rs 1 lakh per month will have mandatory zero MDR for all transactions.

(With inputs from PTI)