RBI backs UPI MDR above ₹2,000; NSE CEO expects short-term hit to transaction volumes

The Reserve Bank of India on Tuesday backed the introduction of merchant discount rate (MDR) on select large-value UPI transactions, saying the move would help strengthen the long-term sustainability of the digital payments ecosystem.

The central bank's comments came after the government announced that a 0.4% charge, capped at ₹300 per transaction, will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000 from October 15.

"The introduction of MDR on large-value UPI transactions (i.e., above ₹2,000) is an important step towards strengthening the long-term sustainability of India's digital payments ecosystem," the RBI said in a post on X.

The RBI said a fair distribution of MDR among participants in the payments ecosystem would support continued investment in technology, infrastructure and payment acceptance networks.

"This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes," it said.

Importantly, UPI users will not be charged MDR, the RBI said.

Person-to-person (P2P) transactions will remain free irrespective of the amount, while P2M transactions up to ₹2,000 will also remain outside the MDR framework.

The revised framework will apply only to specified merchant transactions above ₹2,000.

A flat MDR of ₹5 will apply to transactions above that threshold in sectors such as railways, telecommunications, insurance and fuel.

Payments involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction, according to the government.

Small merchants receiving up to ₹1 lakh a month through UPI QR payments under the person-to-person-merchant (P2PM) category will continue to pay zero MDR.

The government has said the new framework would affect around 4% of merchant transactions, leaving about 96% of P2M transactions unaffected.

The Finance Ministry has said MDR is a charge within the merchant payment ecosystem and is not a charge on customers making UPI payments.

Banks have been advised to ensure merchants do not pass the MDR on to customers, while UPI application providers have been prohibited from imposing platform fees or hidden charges on UPI transactions.

NSE CEO sees short-term hit to volumes

NSE MD and CEO Ashishkumar Chauhan said that the introduction of Merchant Discount Rate (MDR) charges on UPI transactions above Rs 2,000 is likely to weigh on transaction volumes in the short term, but activity is expected to normalise over time.

"There may be some impact initially on our transaction volumes in the short term due to the MDR charges above Rs 2,000. After some time, I hope it normalises," Chauhan said. .