From October 15, merchants will be charged an MDR of 0.4% on UPI transactions above ₹2,000. The charge will be capped at ₹300 for transactions above ₹75,000. Consumers will continue to use UPI without paying a transaction or platform fee.
Small merchants with monthly UPI collections of less than ₹1 lakh will remain exempt from MDR. Payments in sectors such as railways, telecom, insurance and fuel will attract a flat ₹5 fee for transactions above ₹2,000. Capital market transactions will have a lower MDR of 0.02%, subject to a ₹300 cap.
Pine Labs CEO Amrish Rau said the new MDR is unlikely to significantly change merchant behaviour or slow the adoption of digital payments. He pointed to the much higher MDR historically charged on card transactions and said the new UPI fee remains relatively low.
“When it’s at 0.4%, I don’t see any businesses pass this on to the consumer.”
Rau also said payment platforms are ready to implement the new system and that the industry could use the additional revenue to develop new products and payment capabilities.
He highlighted areas such as international payments and business-to-business payments as potential opportunities where further investment in UPI infrastructure could support growth.
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BillDesk Co-Founder and Director Srinivasu M N said banks and other payment ecosystem players have absorbed the cost of building and maintaining UPI infrastructure over the past several years.
He said the new MDR is intended to defray part of these costs rather than become a significant profit pool for the industry. With UPI expected to expand further, he said some form of revenue generation is required to support continued investment.
“We’ve done this over the last five years, and as we look at a mandate of deepening UPI further, it we need some degree of sustainability to be able to do this.”
Only around 4% of UPI merchant transactions by volume cross the ₹2,000 threshold. However, these higher-value transactions account for nearly 67% of the total value processed through UPI, making them significant for the revenue potential of the new MDR framework.
HDFC Bank Senior EVP and Head of Payments & Digital Banking Channels Rajanish Prabhu said the MDR framework could give banks greater room to invest in technology and payment infrastructure.
He said banks need to spend on areas such as cybersecurity, fraud monitoring and risk management as UPI volumes continue to rise. The additional revenue from MDR could therefore help support these investments.
The MDR collected from merchants will be distributed across different participants in the UPI ecosystem. Five percent will go towards a UPI fund, while the remaining 95% will be divided among the customer’s bank, merchant’s acquiring bank, UPI app and the app’s partner bank.
Rau also highlighted the potential impact of the new MDR structure on fintech companies. According to him, the ability to generate revenue from UPI transactions could improve investor interest in India’s fintech sector.
He said the earlier absence of a direct monetisation model had raised concerns among some investors about the ability of fintech companies to generate sustainable returns in India. The new MDR framework could change that perception and encourage more investment into the sector.
For Pine Labs, Rau said the company processes around ₹30,000 crore of UPI transactions a month on its platforms, with an estimated 70-75% of those transactions expected to fall within the ₹2,000-and-above category.
For the entire discussion, watch the accompanying video
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