UPI MDR decision: FinMin rejects claims of US influence, says NPCI rules aim to support domestic competition

On September 17, the Finance Ministry dismissed claims that the United States influenced the new 0.4% Merchant Discount Rate (MDR) decision for specific UPI transactions. The Ministry clarified that the National Payments Corporation of India's (NPCI) recent guidelines do not benefit international credit cards over local RuPay cards within the UPI platform.

The Department of Financial Services (DFS) addressed US Trade Representative's 2026 report concerns about US electronic payment providers' inability to compete fairly in India's UPI ecosystem. The NPCI circular from September 15 prohibits credit transactions on UPI using credit cards other than RuPay, effective October 15, 2026.

Starting then, a 0.4% MDR will apply to person-to-merchant UPI payments over ₹2,000, with merchants responsible for the charge, capped at ₹300 for transactions over ₹75,000. Small merchants earning up to ₹1 lakh monthly through UPI will be exempt from the MDR, covering around 96% of merchant transactions, thereby minimizing its impact.

Consumers are not responsible for the MDR charges, and personal transfers remain free. The MDR is applicable only to certain high-value merchant transactions. Essential services like railways, telecom, fuel, and insurance will incur a flat ₹5 fee for transactions over ₹2,000. A 30% cap on third-party application providers was mandated by NPCI in November 2020, but implementation was challenging due to smaller companies' inability to compete with market leaders without a sustainable revenue model.

The introduction of the MDR aims to create a self-sustaining revenue framework for smaller companies to enhance their market share in the UPI ecosystem, promoting domestic competition and India's sovereignty in the electronic payments sector.