'To strengthen UPI's sustainability': RBI backs 0.4% MDR on payments above Rs 2,000

The Reserve Bank of India (RBI) has endorsed the introduction of a Merchant Discount Rate (MDR) for large-value Unified Payments Interface (UPI) transactions exceeding Rs 2,000, aiming to bolster India’s digital payments ecosystem's long-term sustainability. The National Payments Corporation of India (NPCI) has mandated the 0.4% MDR for person-to-merchant (P2M) UPI payments above the Rs 2,000 threshold, effective from October 15, 2026. In contrast, person-to-person (P2P) UPI transactions will continue to be free.

The RBI emphasized that this move would facilitate UPI's scalability, innovation, and continuous service to consumers and businesses nationwide. The government clarified that the MDR is a charge within the merchant payment ecosystem and will not be directly levied on customers. No UPI charges for users are imposed, stating that "customers will not be required to pay any charge when making such payments through UPI."

Merchants will pay an MDR of 0.4% on P2M UPI transactions exceeding Rs 2,000, with a cap of Rs 300 per transaction for payments of Rs 75,000 and above. Transactions up to Rs 2,000, which constitute over 95% of P2M UPI transactions by volume, will remain free for merchants.

Under the new framework, merchants will bear an MDR of 0.4% for P2M UPI transactions over Rs 2,000, with a cap of Rs 300 per transaction. This measure is set to take effect on October 15, 2026, allowing acquiring banks, payment aggregators, fintech companies, and corporate accounting platforms to adjust their systems. No impact on UPI transactions up to Rs 2,000 is anticipated, as they account for more than 95% of P2M UPI transactions by volume.

The government aims to maintain these everyday digital payments free while establishing a sustainable revenue model for the UPI ecosystem.