NPCI Announces 0.4 Percent Merchant Discount Rate on UPI Payments Above Rs 2,000 Effective October 15, Ending Zero-Fee Regime in Place Since January 2020

The National Payments Corporation of India announced on September 15 that a 0.4 percent merchant discount rate will apply to person-to-merchant UPI transactions above Rs 2,000 from October 15, 2026, marking the first charge on UPI since the government made the system free in 2020. The fee will be capped at Rs 300 for transactions of Rs 75,000 or more, while person-to-merchant transactions up to Rs 2,000 will remain free of MDR. Person-to-person UPI transfers will continue to be free regardless of amount. Customers will not pay the MDR directly, and banks have been advised to ensure that merchants do not pass the charge on to customers. The framework takes effect from October 15, giving acquiring banks, payment aggregators, fintech applications and corporate accounting platforms time to update their software engines and billing systems. The move ends a zero-MDR regime that has been in place since January 2020, when the government scrapped merchant fees on UPI and RuPay debit card transactions to accelerate digital-payments adoption, compensating banks and fintechs instead through an annual budgetary incentive scheme. Since then, UPI has grown far beyond the scale envisaged, processing 2,451 crore transactions valued at Rs 29.9 trillion in August 2026. At that scale, the cost of keeping the system reliable, secure and capable of handling ever-higher volumes has also risen. NPCI has said industry estimates put the annual cost of operating UPI at roughly Rs 20,000 crore a year. The government estimates that around 96 percent of merchant UPI transactions will remain unaffected. A flat fee of Rs 5 will apply to certain merchant categories for transactions above Rs 2,000, including railways, telecom services, insurance, fuel, electricity distribution, municipal water charges and piped natural gas. Capital market transactions will attract an MDR of 0.02 percent, subject to a maximum cap of Rs 300, covering payments for mutual funds, securities, stockbrokers and dealers, as