India’s digital payments ecosystem is set for an important change as a new Merchant Discount Rate (MDR) will be introduced on selected high-value UPI merchant transactions from October 15, 2026.
Under the new framework, eligible person-to-merchant UPI payments above ₹2,000 will attract an MDR of 0.4 per cent. For transactions of ₹75,000 and above, the charge will be capped at ₹300. The fee will be borne by merchants rather than consumers.
MDR is a payment-processing charge linked to the infrastructure and services involved in completing a digital transaction. The introduction of the charge creates a new revenue mechanism for participants across the digital payments ecosystem, including banks and payment service providers.
The new system does not apply to every UPI transaction. Person-to-person payments will continue to remain outside the charge, while merchant transactions of up to ₹2,000 will also remain exempt from the new MDR. This structure is intended to protect routine, low-value digital payments and reduce the impact on small merchants.
The change comes after several years of rapid growth in UPI usage. Digital payments have become an important part of India’s retail and business economy, increasing the need for continued investment in payment technology, transaction processing, cybersecurity and fraud prevention.
The introduction of MDR is therefore expected to provide an additional source of revenue that can support the expansion and maintenance of the country’s digital payment infrastructure.
Impact on businesses
The biggest change will be felt by businesses that receive a significant share of their payments through eligible UPI transactions above ₹2,000. Such merchants will need to account for the payment-processing cost as part of their regular business expenses once the new system becomes operational.
For smaller businesses that largely depend on low-value UPI payments, the impact is expected to be more limited because transactions up to ₹2,000 will remain outside the new MDR structure.
The change could also encourage larger merchants to review their payment mix and understand the cost associated with different digital payment channels. Businesses may increasingly focus on improving payment management and controlling transaction-related expenses as digital payments become a larger part of their operations.
At the same time, the MDR framework could strengthen the financial sustainability of the wider payment ecosystem. Revenue generated through eligible transactions can support investments in technology, security, network capacity and merchant services.
What it means for consumers
The new charge is designed to be imposed on merchants rather than directly on customers. Consumers will therefore not face an MDR charge simply for making an eligible UPI payment.
However, the eventual effect on customers could depend on how individual businesses manage their payment costs. Merchants will have to decide how the additional expense fits into their overall operating costs and pricing strategies.
The framework also retains protection for smaller-value transactions, helping ensure that UPI continues to remain accessible for everyday payments.
A shift in the UPI business model
The introduction of MDR marks a shift in the economics of India’s UPI ecosystem. UPI has expanded rapidly while operating with limited direct monetisation for many merchant transactions. The new framework introduces a structured revenue mechanism for selected higher-value payments while keeping low-value transactions outside the charge.
For businesses, the development means that payment costs will become a more important part of financial planning, particularly for merchants with substantial high-value digital transactions.
For the broader payments industry, the new revenue stream could help support further investment in infrastructure and technology as India’s reliance on digital payments continues to grow.
The new MDR framework will take effect from October 15, 2026, marking a new phase in the commercial development of India’s digital payments ecosystem.
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