MobiKwik, PhonePe, and Paytm executives have welcomed the move to implement a Merchant Discount Rate (MDR) on UPI merchant transactions exceeding Rs 2,000 starting October 15, 2026, highlighting the need for a sustainable payment ecosystem amid growing transaction volumes and costs.
- 0.4% MDR applied to UPI merchant transactions above Rs 2,000 starting October 15
- Small-value transactions and person-to-person transfers remain free
- Industry leaders stress MDR is crucial for payment ecosystem sustainability
What happened
Starting October 15, 2026, a 0.4% Merchant Discount Rate (MDR) will be charged on Unified Payments Interface (UPI) transactions made by merchants above Rs 2,000, with a cap of Rs 300 for transactions above Rs 75,000. This marks a significant policy update as UPI transactions have historically been free of merchant fees. Specific sectors such as fuel, insurance, and railways will have a lower flat MDR fee instead.
Executives from major Indian payment companies including MobiKwik, PhonePe, and Paytm have expressed support for this change. They cite the need to cover rising costs related to transaction processing, cybersecurity, fraud prevention, and regulatory compliance. The move aims to create a sustainable revenue model that reflects the scale and ambition of India’s rapidly expanding payment ecosystem.
Why it matters
The MDR introduction breaks a long-standing government subsidy model where UPI merchant transactions were free, which payment companies absorbed at a loss. As transaction volumes approach billion-scale ambitions, the cost burden has become unsustainable, threatening growth and service quality without a revenue model. The fee will help fund crucial areas such as security and system scalability, securing the ecosystem’s future.
Industry leaders clarify that the MDR will not affect person-to-person transfers or low-value transactions under Rs 2,000, which make up most transaction counts. This ensures that everyday payments, including small purchases like coffee or taxi rides, remain free for merchants, while higher-value transactions contribute to the payment infrastructure's sustainability. The MDR aligns UPI fees with costs charged by debit and credit card networks, positioning UPI for long-term viability.
What to watch next
Stakeholders will monitor the impact of MDR on merchant acceptance and consumer behavior to gauge if the fee structure supports growth without discouraging digital payments. Payment companies will likely invest the new revenue into enhancing cybersecurity, fraud management, KYC processes, and compliance infrastructure—areas identified as costly under the previous free model.
Ongoing regulatory clarity will be important to ensure transparent allocation of MDR revenue across players in the payment ecosystem. Additionally, market response from large merchants and sectors with flat MDR fees could influence future policy adjustments. The balance between fair fees and maintaining UPI’s competitive edge in India’s digital payments landscape will remain a key focus.