Government Weighs Return of UPI MDR for Large Merchants to Build Sustainable Payment Infrastructure — September 9, 2026

India's digital payments landscape is preparing for a significant structural shift as policymakers move closer to reinstating a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions, targeted specifically at large merchants and high-value person-to-merchant (P2M) flows.

The development follows parliamentary clearance of enabling legislative amendments to the Payment and Settlement Systems Act, 2007, clearing the runway for the National Payments Corporation of India (NPCI) and the Reserve Bank of India (RBI) to establish a tiered pricing framework.

The Push for Revenue Sustainability

Since January 2020, the Centre has enforced a strict zero-MDR mandate on UPI and RuPay debit card transactions to accelerate consumer and merchant adoption across India. While the strategy propelled UPI to become the world's leading real-time retail payment mechanism—processing hundreds of billions of transactions annually—it placed significant commercial strain on the ecosystem.

Industry estimates indicate that operating and maintaining the core UPI processing architecture, fraud detection systems, and server networks costs banks, payment service providers (PSPs), and NPCI approximately ₹20,000 crore each year. Fintech firms and acquiring banks have long argued that relying primarily on government budgetary subsidies limits capital reinvestment into technology and cybersecurity infrastructure.

Proposed Framework and Merchant Thresholds

Under the tiered framework evaluated by the Department of Financial Services (DFS) and NPCI's steering committee, statutory protections will remain firmly in place for retail consumers and small micro-merchants.

Key Dimensions of the Proposed MDR Framework:

• Turnover Thresholds: The charge is slated to apply only to established businesses with an annual merchant turnover exceeding ₹1 crore to ₹1.5 crore.
• Ticket Size Slabs: MDR is expected to kick in specifically for individual transactions of ₹2,000 and above, leaving routine small-ticket daily payments completely untouched.
• Nominal Rate Band: Proposed charges are calibrated to remain far below conventional credit card fees (1.3%–2%), with discussions ranging between 0.05% (5–7 basis points) and 0.30%–0.50%.
• Zero Cost for Consumers: Peer-to-peer (P2P) transfers and direct customer purchases will remain free, with explicit regulatory curbs preventing merchants from levying direct surcharges on customers.

Transactions meeting the high-ticket and large-merchant criteria represent roughly 4% of total UPI volume but account for nearly 67% of total transaction value, providing a targeted avenue for revenue recovery without hurting mass digital adoption.

Implications for Fintechs, Banks, and Investors

For listed payment firms and acquiring lenders—including players such as Paytm (One97 Communications), Google Pay, PhonePe, and major scheduled commercial banks—the reintroduction of MDR converts transaction volume into direct top-line revenue.

Brokerages and market analysts have reacted positively to the monetisation prospects. Analysts note that shifting from zero MDR to a calibrated fee regime will improve unit economics across point-of-sale (PoS) and soundbox installations at organised retail chains, supermarkets, and large e-commerce platforms. While large retailers will need to factor merchant discount fees back into operating budgets, the measured rate structure ensures that UPI remains substantially more cost-effective than international card networks.

Tags: UPI NPCI RBI Ministry of Finance Fintech Paytm