UPI fee: What is MDR, and how will merchant payments above Rs 2,000 affect you?

The government has announced a new rule that may introduce a fee on UPI transactions exceeding Rs 2,000. Merchant Discount Rate (MDR) is a charge applied to merchants for processing digital payments, typically split among banks and other involved entities. Although UPI transactions under Rs 2,000 have been free since January 2020, this new fee could impact both consumers and merchants.

For instance, if a merchant passes on the MDR to the consumer, it may deter individuals from using UPI for larger payments. According to a LocalCircles poll of over 20,000 people, only 12% of respondents would continue using UPI if a fee were imposed on transactions over Rs 3,000 at large merchants. This percentage drops to just 2% when considering the potential for merchants to recover transaction fees from customers.

The government's primary motivation behind this fee is to ensure the sustainability of the UPI ecosystem, which currently generates economic costs estimated at around Rs 20,000 crore annually. By introducing a limited set of MDR charges on high-value UPI payments, the government aims to maintain a robust, inclusive, and future-ready digital payments system.