NPCI Sets 0.4% MDR on UPI Merchant Payments

The National Payments Corporation of India announced a Merchant Discount Rate of 0.4% on Person-to-Merchant Unified Payments Interface transactions above ₹2,000 on 15 September 2026. The revised structure applies from 15 October 2026, while Person-to-Person UPI transfers remain free of charge and merchant payments up to ₹2,000 also remain exempt.

Merchant Discount Rate in Digital Payments

Merchant Discount Rate is a fee charged in the card and digital payments ecosystem for processing a transaction. In UPI transactions, the charge is linked to the merchant side of the payment chain and is not levied on the customer making the payment.

UPI Transaction Categories

Unified Payments Interface supports Person-to-Person transfers and Person-to-Merchant payments. Person-to-Person Merchant, or P2PM, is a classification used for small merchants receiving payments through UPI QR codes, and such merchants receiving up to ₹1 lakh per month remain outside MDR on UPI receipts.

Sector-wise MDR Provisions

For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction. A flat MDR of ₹5 per transaction applies to payments above ₹2,000 in sectors such as railways, telecom, insurance, fuel, and agriculture inputs.

Important Facts for Exams

• The National Payments Corporation of India was set up in 2008 as an umbrella organisation for retail payments in India.
• Unified Payments Interface was launched in 2016 by the National Payments Corporation of India.
• Merchant Discount Rate is commonly associated with card payments, QR-based payments, and other digital payment rails.
• Person-to-Person UPI transfers are direct transfers between two individual bank accounts.

UPI Ecosystem and Settlement

UPI operates through bank accounts linked to mobile applications and QR codes, and it enables real-time fund transfer. The system is used across banks, payment apps, and merchant acceptance points in India.

Merchant Acceptance and Small Business Use

UPI QR codes are widely used by small merchants, street vendors, and retail outlets for low-value digital payments. The P2PM classification is relevant for merchants with limited monthly receipt volumes through UPI.