Summary of this article
Proposed UPI merchant charges need changes to protect public trust.
MDR should focus on businesses with turnover above Rs 50 crore.
Loan EMI repayments and debt collections should remain free from MDR.
A Merchant Discount Rate (MDR) on some Unified Payments Interface (UPI) transactions must be altered before it can be put into practice to avoid public discontent and restore faith in digital payments, IIT Bombay has said in a report.
The report, UPI at a Crossroads Reintroducing the MDR: Impact Analysis and the Way Forward, has said that the economic advantages of UPI, such as saving time and increasing productivity, far outweigh the extra income that the merchant charges provide for. It has proposed a fee structure to facilitate the payments system without rendering digital transactions less accessible to businesses and users.
Limit MDR To Merchants With Turnover Above Rs 50 Crore
The report has recommended restricting MDR to merchants with annual turnover exceeding Rs 50 crore, a threshold linked to the legal requirement for specified businesses to offer UPI as a payment option.
This approach could account for around 90 per cent of the MDR revenue proposed by the National Payments Corporation of India (NPCI), the report said. It also proposed a reasonable charge on online person-to-merchant (P2M) transactions within the existing legal framework.
E-commerce businesses could be a suitable category for such charges because their transactions are primarily digital, and cash-on-delivery options are giving way to UPI-based payments at delivery.
The report added that an appropriate fee could compensate banks and other service providers involved in processing UPI payments. However, the framework needs to balance revenue generation with the affordability and accessibility of digital payments.
What NPCI’s Proposed MDR Framework Includes
NPCI, which operates UPI, issued a circular on September 15, 2026 outlining MDR charges for certain merchant transactions. Under the proposed framework, a 0.40 per cent MDR applies to eligible P2M UPI transactions above Rs 2,000. Merchants, rather than customers, bear the charge, which is capped at Rs 300 for transactions of Rs 75,000 or more.
Payments between individuals and most routine merchant transactions will remain free. Essential services, including railways, telecom, fuel and insurance, attract a flat fee of Rs 5 on eligible transactions above Rs 2,000.
Capital market transactions, including mutual fund investments and stockbroking payments, carry a lower MDR of 0.02 per cent, subject to a cap of Rs 300.
Loan Repayments Outside MDR
The report has suggested that debt collection and equated monthly instalment (EMI) payments on loans should be exempt from MDR, even if the individual transaction amount is more than Rs 2,000.
It has contended that the imposition of charges on credit servicing may make it more expensive to pay back digital debt and add unnecessary financial strain for borrowers. Maintaining these payments as free may also drive more digital repayments than cash and cheque transactions.
The report has also suggested that the Reserve Bank of India (RBI) finalise the MDR framework of UPI under the Payment and Settlement Systems Act, 2007.
