Minister Scindia explains rationale behind MDR on UPI for merchants

Union Minister Jyotiraditya M Scindia stated that the new Merchant Discount Rate (MDR) on UPI transactions is to make the system self-sustaining. He assured that ordinary customers will not be charged, as the levy applies only to merchants.

Rationale for a Self-Sustaining System

For a technology structure to be completely independent, it needs to be self-sustaining, Union Minister for Communications Jyotiraditya M Scindia said on Wednesday, while noting that no charges will be levied on the ordinary customer or citizens under the Merchant Discount Rate (MDR) decision of the government on UPI transactions.

In an interview with ANI, Scindia outlined the rationale behind MDR structure on the Unified Payments Interface (UPI) platform. The minister noted that the central government initially financed both capital expenditure and yearly operational costs from ordinary taxpayer funds to build and maintain the digital payment rail. To transition the architecture into an autonomous mechanism, a tiered pricing model now applies strictly to merchants without affecting retail end-users.

Revised UPI MDR Framework

As per National Payments Corporation of India (NPCI), UPI transactions above Rs 2,000 will attract a Merchant Discount Rate (MDR) of 0.4 per cent under a revised framework, while consumers will continue to transact free of cost using UPI.

The revised UPI Merchant Discount Rate framework will come into effect from October 15, 2026, and will apply to select merchant transactions. The minister stated that for transactions between Rs 2,000 and Rs 75,000, the fee is 0.4 per cent, while amounts exceeding Rs 75,000 carry a flat maximum cap of Rs 300. He affirmed that this rate applies solely to the merchant rather than individual consumers.

"When a technology, a system, is to be completely independent, then it should also be on its feet. Just like every child, after receiving education, after receiving experience, also contributes to their family. And on the basis of this thought, today the MDR, Merchant Discount Rate, which has been put on the UPI system, is 0.4%," he said.

Cost Comparison with Other Payment Methods

Detailing the cost comparison against traditional payment instruments, Scindia observed that credit card transaction costs range between 1.5 per cent and 2.5 per cent, while debit card costs stand at 0.9 per cent. In contrast, the government and the Reserve Bank of India set the UPI benchmark at 0.4 per cent under defined thresholds.

No Charges for the Average Customer

"Up to Rs. 2000….on that, 0% will be the charge of the MDR. I am saying it again, 0%. And today, all the transactions of UPI, i.e. the transactions of Rs. 360 lakh crores, 96% of them, are less than Rs. 2000. That means, only for 4% of the transactions, this cost will be charged," Scindia said.

"This charge is not levied on the customer, not on you or me, but on the merchant. This means we do not have to pay even a single paisa extra. The charge falls on the merchant to ensure the robustness of the entire UPI system. In short, it makes no difference to the average customer," Scindia said.

Exemptions and Special Cases

He added that peer-to-peer transfers among relatives or friends remain at zero charge. Merchants recording monthly volumes below Rs 1 lakh also face zero liability, while utility payments, railway bookings, insurance, and fuel purchases carry a capped merchant levy of Rs 5.

Strengthening Infrastructure and Rural Inclusion

"We are strengthening our infrastructure, including server networks and overall technology. Second, a dedicated fund is being created to provide subsidies that will help bring merchants from rural areas and smaller towns into this system," Scindia said. (ANI)

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