NPCI Considers Deferring UPI Merchant Discount Rate Rollout to January 2027

The National Payments Corporation of India (NPCI) has received formal representations from merchant associations, fintech companies, and payment service providers urging a postponement of the proposed Merchant Discount Rate (MDR) rollout on Unified Payments Interface (UPI) transactions to January 1, 2027. The framework was originally slated to take effect from October 15, 2026.

The timing was actively evaluated during a meeting of the UPI and Services Steering Committee, led by the NPCI. A final decision in consultation with the Union Finance Ministry is expected shortly.

Festive Relief for Retailers

Pushing back the implementation date provides temporary respite to merchants across the country ahead of the busy festive shopping window stretching through Diwali and Christmas.

Retail trade associations had earlier raised strong opposition against levying fees on digital transactions, even calling for a nationwide "No UPI Day" protest on October 2. The protest was subsequently withdrawn following a direct engagement with Union Finance Minister Nirmala Sitharaman.

A rollout after the culmination of the holiday shopping season on January 1, 2027, ensures that offline and online merchants can accept digital payments without incurring transaction cuts during their highest-revenue period.

Structure of the Proposed MDR Framework

The planned fee framework aims to build commercial sustainability for banks and payment infrastructure providers while shielding everyday retail users and small mom-and-pop stores.

Key terms under the proposed UPI MDR framework:

• Consumers will not be subject to any fee or levy on UPI transactions.
• An MDR of 0.40% (40 basis points) will apply only to person-to-merchant (P2M) transactions exceeding ₹2,000.
• The maximum MDR charge is capped at ₹300 per eligible transaction.
• Specific essential segments, such as utility bill payments, fuel, and education, will attract a flat fee of ₹5 per transaction above ₹2,000.
• Zero MDR remains intact for all transactions up to ₹2,000.

In addition, the steering committee is reviewing an expansion of the small-merchant safeguard. While earlier proposals exempted merchants with monthly turnovers up to ₹1 lakh, regulators are now discussing a wider threshold exempting businesses with an annual turnover of up to ₹40 lakh from MDR charges.

Industry Preparedness and Operational Scale

Beyond the timing considerations, payment ecosystem participants have requested additional clarity regarding merchant category codes (MCCs), billing mechanisms, and backend classification rules to avoid operational friction between banks, third-party application providers, and acquirers.

The scale of UPI makes seamless execution critical for the broader economy. In September 2026, the network handled a daily average of 802 million transactions, with the average daily transaction value standing at ₹97,913 crore. Payment industry players emphasize that extra transition time will enable smooth technological testing while ensuring minimal disruptions for consumers and businesses alike.

Tags: National Payments Corporation of India UPI Ministry of Finance Fintech Digital Payments Retail Sector