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India's new UPI fee set at 0.4%, will hit just 4% of merchant transactions, Finance Ministry says

NPCI has put a price on India's larger UPI merchant payments from October 15, and by the Finance Ministry's own estimate the 0.4% charge touches only 4% of merchant transactions. Person-to-person transfers stay free.

The Investor · Invest desk

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What happened

  • NPCI's circular of September 15 sets a 0.4% merchant discount rate on UPI payments to merchants above Rs 2,000 per transaction, payable by merchants to banks and payment processors from October 15.
  • Railways, telecom, insurance, fuel and agriculture inputs pay a flat Rs 5 per transaction above Rs 2,000 instead of the percentage rate.
  • Small merchants taking up to Rs 1 lakh a month through UPI QR codes pay nothing, and move into the 0.4% category only after three consecutive months above that inflow.
  • The Finance Ministry said its data analysis shows only 4% of merchant transactions will be affected, because most sit below Rs 2,000 or fall under the zero-MDR small-merchant class.

Why it matters

  • What it limits constraint The Rs 300 ceiling equals 0.4% at exactly Rs 75,000, so a bank earns the same Rs 300 on a Rs 3 lakh payment as on a Rs 75,000 one, an effective 0.1%, and the largest tickets stop adding revenue.
  • What it costs cost A fuel retailer or insurer taking a Rs 20,000 UPI payment pays Rs 5 where a general merchant pays Rs 80, and the gap widens with ticket size.
  • Who has to decide decision A merchant billing Rs 2,400 owes Rs 9.60 on one charge and nothing on two of Rs 1,200, so anyone pricing near the threshold now has a reason to split.
  • Who's exposed exposure App providers are expressly barred from platform fees or hidden charges, while the block on merchants recovering MDR from shoppers is advice given to banks.

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Zero remains the price on the parts of UPI that move the money. The Finance Ministry put person-to-person transfers at 37% of UPI transactions by volume and 70% by value [13], so person-to-merchant traffic is 63% of volume and 30% of value [26]. Take the Ministry's estimate that 4% of merchant transactions will be charged [12], and the fee touches roughly 2.5% of all UPI transactions by count [24].

The charge will be "shared amongst the payment ecosystem partners, including banks and app providers", the Ministry said [4], and 5% of total collections goes into a fund to promote UPI use by small merchants [16], leaving 95% with banks, aggregators and apps [27].

Mutual funds, securities, stockbrokers and dealers pay 0.02% with the same Rs 300 ceiling [9], one twentieth of 0.4% [23], and at 0.02% that ceiling does not bind until Rs 15 lakh a transaction [22]. Bills and subscriptions collected through UPI Mandates or AutoPay pay nothing [14].

NPCI said the October 15 date gives acquiring banks, payment aggregators, fintech applications and corporate accounting platforms "adequate lead time to update their software engines and billing systems" [6]. Small merchants keep their existing QR codes, and banks and payment service providers already run transaction velocity checks against the Rs 1 lakh monthly inflow [18]. According to the Indian Express, the government did not specify the levy that applies beyond that limit [11].

"Because the proposed UPI MDR is significantly lower than credit card fees and applies only above specific transaction thresholds, shopkeepers have no economic incentive to inflate retail shelf prices. Consumers will continue paying the exact listed price for goods and services," NPCI said [28]. A day before the fee schedule appeared, the government exempted all UPI payments up to Rs 2,000 and RuPay debit card transactions from any bank charges [17].

NPCI says the proceeds fund investment in infrastructure resiliency, innovation, cybersecurity and customer service [30], and the Ministry said the framework "will make UPI self-sustainable, give incentives for further expansion in rural and semi-urban areas and maintain competitiveness, while ensuring that a large majority of payments remain free of charge" [29]. In my view the collections will be thinner than that sentence implies, because the base excludes everything under Rs 2,000 and flattens on large tickets. The counter is straightforward and might be right. The 4% counts transactions, and the charged ones sit in the upper tail of the 30% of UPI value that is person-to-merchant [12][26]. The number that would settle it, the share of P2M value above Rs 2,000, has not been published; the value figures stop at the 70-30 split between P2P and P2M [13].

What to watch

  • Whether NPCI or the Finance Ministry publishes value-weighted data on P2M receipts above Rs 2,000 after October 15.
  • Whether acquiring banks, aggregators and app providers disclose how the 0.4% is split between them, and whether merchant account pricing changes with it.
  • Whether banks report merchants adding the charge at the till, and what the advisory against pass-through does in response.

Information, not investment advice. This story is general information about companies and markets, drawn from cited reporting. It is not a recommendation to buy, sell or hold any security; check the cited sources before acting.

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  1. [1]

    NPCI introduced a 0.4% Merchant Discount Rate that most merchants will pay to banks and payment processors on UPI payments they receive in excess of Rs 2,000 per transaction, in a circular issued on Tuesday, September 15, 2026.

    Reported SupportedView cited source
  2. [2]

    The Ministry of Finance said: "For person-to-person (P2P) transactions, there will be no charges at all, irrespective of transaction value."

    Reported SupportedView cited source
  3. [3]

    The new MDR structure takes effect from October 15, 2026.

    Reported SupportedView cited source
  4. [4]

    According to the government release, the 0.4% MDR charge will be "shared amongst the payment ecosystem partners, including banks and app providers".

    Reported SupportedView cited source
  5. [5]

    The government advised banks to ensure that merchants do not pass MDR charges to customers, and the Finance Ministry said UPI application providers are "expressly prohibited from imposing platform fees or hidden charges".

    Reported SupportedView cited source
  6. [6]

    NPCI said the October 15 effective date provides acquiring banks, payment aggregators, fintech applications and corporate accounting platforms "adequate lead time to update their software engines and billing systems".

    Reported SupportedView cited source
  7. [7]

    For high-value UPI payments to merchants exceeding Rs 75,000, the 0.4% MDR is capped at Rs 300 per transaction.

    Reported SupportedView cited source
  8. [8]

    The Ministry said railways, telecom, insurance, fuel sectors and agriculture inputs will pay a flat MDR of Rs 5 per transaction above Rs 2,000.

    Reported SupportedView cited source
  9. [9]

    Payments relating to mutual funds, securities, stockbrokers and dealers attract an MDR of 0.02%, capped at Rs 300 per transaction.

    Reported SupportedView cited source
  10. [10]

    Small merchants receiving up to Rs 1 lakh per month via UPI QR codes under the Person-to-Person Merchant (P2PM) classification will not pay MDR on any UPI transactions they receive.

    Reported SupportedView cited source
  11. [11]

    The government did not specify the MDR levy beyond the Rs 1 lakh per month limit for small merchants.

    Reported SupportedView cited source
  12. [12]

    The Finance Ministry said its data analysis shows only 4% of merchant transactions will be impacted by the MDR introduction, since most transactions fall below the Rs 2,000 threshold or qualify under the zero-MDR P2PM framework.

    Reported SupportedView cited source
  13. [13]

    The Ministry of Finance said: "P2P transactions constitute 37% of the total UPI transactions in volume terms and 70% in value terms."

    Reported SupportedView cited source
  14. [14]

    Monthly utility bills, OTT subscriptions and recurring investments paid through automated recurring standing instructions, UPI Mandates or AutoPay, will not face MDR charges.

    Reported SupportedView cited source
  15. [15]

    NPCI said merchants with inward credit of aggregate UPI payments of over Rs 1 lakh per month, consecutively for three months, are moved to the regular person-to-merchant category, which attracts the 0.4% MDR.

    Reported SupportedView cited source
  16. [16]

    A dedicated fund for promoting the use of UPI by small merchants will be set up using 5% of total MDR collections.

    Reported SupportedView cited source
  17. [17]

    The MDR announcement came a day after the government exempted all UPI payments up to Rs 2,000 and RuPay debit card transactions from any bank charges.

    Reported SupportedView cited source
  18. [18]

    NPCI said small merchants are not required to replace or re-register their QR codes, and banks and payment service providers use transaction velocity checks for P2PM merchants to monitor the Rs 1 lakh per month inflow threshold.

    Reported SupportedView cited source
  19. [19]

    The Rs 300 cap equals the 0.4% charge at exactly Rs 75,000, the transaction size at which the cap starts to apply.

    Derived Supported
  20. [20]

    On a Rs 3 lakh merchant payment the capped Rs 300 charge is an effective rate of 0.1%.

    Derived Supported
  21. [21]

    On a Rs 20,000 payment the general 0.4% rate is Rs 80, so the flat Rs 5 in essential sectors is one sixteenth of that.

    Derived Supported
  22. [22]

    At 0.02%, a Rs 300 cap is not reached until a transaction of Rs 15 lakh.

    Derived Supported
  23. [23]

    The 0.02% securities rate is one twentieth of the 0.4% general merchant rate.

    Derived Supported
  24. [24]

    If 4% of merchant transactions are charged and merchant transactions are 63% of UPI volume, the fee applies to about 2.5% of all UPI transactions by count.

    Derived Supported
  25. [25]

    A Rs 2,400 merchant payment carries a 0.4% charge of Rs 9.60, while the same sale taken as two payments of Rs 1,200 falls below the Rs 2,000 threshold and carries nothing.

    Derived Supported
  26. [26]

    Person-to-merchant traffic is 63% of UPI transactions by volume and 30% by value.

    Derived Supported
  27. [27]

    After 5% of collections is diverted to the small-merchant fund, 95% remains with the payment ecosystem partners.

    Derived Supported
  28. [28]

    NPCI said: "Because the proposed UPI MDR is significantly lower than credit card fees and applies only above specific transaction thresholds, shopkeepers have no economic incentive to inflate retail shelf prices. Consumers will continue paying the exact listed price for goods and services."

    Reported ContestedView cited source
  29. [29]

    The Finance Ministry said: "The new MDR framework will make UPI self-sustainable, give incentives for further expansion in rural and semi-urban areas and maintain competitiveness, while ensuring that a large majority of payments remain free of charge."

    Reported InsufficientView cited source
  30. [30]

    NPCI argues the MDR will help fund further investments into infrastructure resiliency, innovation, cybersecurity and customer service.

    Reported InsufficientView cited source

Sources

3 independent publishers whose own reporting we read for this story.

  1. indianexpress.com

    1 article · September 15, 2026

    MDR charges announced: How much will you now pay for UPI transactions, and who is exempt? | Explained News - The Indian Express
  2. pymnts.com

    1 article · September 16, 2026

    India Brings Merchant Fees to Popular UPI Payment System
  3. thehindu.com

    2 articles · September 15, 2026

    Merchants to be charged 0.4% for UPI transactions over ₹2,000; small vendors exempt - The Hindu

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