Merchant Discount Rate (MDR) for UPI Transactions
The Merchant Discount Rate (MDR) is a fee that merchants pay to entities facilitating digital transactions, including banks and payment service providers. Recently announced changes in the MDR regime are aimed at affecting UPI transactions.
MDR Charges and Exemptions
- UPI payments to merchants above Rs 2,000 are subject to a uniform MDR of 0.4%, with some exceptions.
- Transactions up to Rs 2,000 and person-to-person payments remain free of MDR.
- High-value transactions exceeding Rs 75,000 are capped at a Rs 300 MDR per transaction.
- Essential services like railways and utilities attract a flat fee of Rs 5 per transaction.
- Payments for financial services (e.g., mutual funds) will have an MDR of 0.02%, capped at Rs 300.
Consumer Impact and Merchant Dynamics
The government has advised banks to prevent merchants from passing MDR costs to consumers. Merchants, especially smaller ones, may still prefer cash transactions to avoid these charges. However, the lower MDR for UPI compared to traditional cards is designed to encourage digital payments.
Comparison with Debit and Credit Card MDRs
- Traditional card MDRs range from 1.5% to 2.5%, while debit card MDRs can reach up to 0.90%.
- UPI's baseline MDR is 0.4% for transactions above Rs 2,000.
Impact on Micro Merchants and Small Vendors
- Small vendors earning up to Rs 1 lakh per month via UPI QR codes are exempt from MDR.
- Merchants exceeding this threshold for three consecutive months are reclassified and will incur MDR charges.
Rationale for MDR Charges
Banks and payment providers have advocated for MDR due to the annual cost of maintaining digital payment infrastructure, estimated at Rs 20,000 crore. The government supports MDR to reinvest in these systems, although critics argue it could hamper the momentum of digital payments in India.
Overall UPI Transaction Statistics
In 2025-26, Rs 314 lakh crore worth of UPI transactions were processed, with transactions over Rs 2,000 constituting a significant share by value.
