NPCI Introduces 0.4% MDR on UPI Transactions Above ₹2,000

The National Payments Corporation of India (NPCI) has introduced a 0.4% Merchant Discount Rate (MDR) on certain Unified Payments Interface (UPI) transactions. This charge will apply to Person-to-Merchant (P2M) UPI transactions above ₹2,000.

The MDR is a fee that banks and payment service providers charge merchants for processing digital payments. The amount can vary depending on the payment method, merchant category, transaction value, and agreements between the businesses involved.

When a customer makes a digital payment to a merchant, the merchant generally pays a small processing fee to the bank or company handling the transaction. While merchants are usually expected to bear the cost, some businesses may add it to the customer’s bill.

The 0.4% MDR will apply to P2M UPI payments above ₹2,000. For transactions of ₹75,000 or more, the fee will be capped at ₹300. Small merchants covered by the Person-to-Person-Merchant (P2PM) framework will be exempt from MDR.

NPCI introduced P2PM as a separate account category for small vendors receiving payments directly into their personal bank accounts. According to NPCI, the small-vendor category covers merchants receiving up to ₹1 lakh a month through UPI QR directly into their accounts.

Railways, telecom services, insurance, and fuel are among the categories that will instead attract a fixed MDR of ₹5 per transaction for payments above ₹2,000. These merchants will pay ₹5 regardless of the total transaction value instead of the 0.4% MDR.

NPCI said the fixed fee is intended to keep costs under control for essential public services, utility payments, and low-margin businesses such as fuel retailers. The MDR collected from high-value transactions will be distributed among different participants in the UPI ecosystem.

The measure is aimed at funding the expansion of UPI to more users and merchants while supporting expenditure on resilience, cybersecurity, and innovation. Customers will not be charged for making UPI payments under the revised system.

The introduction of MDR on UPI transactions is a significant development in the digital payments landscape in India. It is expected to have a positive impact on the growth of digital payments in the country.

The NPCI's decision to exempt small merchants from MDR is a welcome move, as it will encourage digital payments among small businesses and vendors in the unorganised retail sector.

Overall, the introduction of MDR on UPI transactions is a step towards making digital payments more sustainable and secure. It will help to promote the growth of digital payments in India and support the country's vision of becoming a cashless economy.

The MDR charges will be used to improve the UPI ecosystem and provide better services to users. It will also help to increase the adoption of digital payments among merchants and customers.

In conclusion, the introduction of MDR on UPI transactions is a significant development in the digital payments landscape in India. It is expected to have a positive impact on the growth of digital payments in the country and promote the adoption of digital payments among merchants and customers.