Centre In Talks With Payment Aggregators To Keep UPI Fee Off Customers: UPI MDR, UPI, Merchant Discount Rate & Digital Payments
Centre talks with Payment Aggregators to keep UPI MDR off customers as new Merchant Discount Rate rules reshape digital payments from October 15.
Centre In Talks With Payment Aggregators To Keep UPI Fee Off Customers | UPI MDR, Merchant Discount Rate, Finance Ministry & Digital Payments Explained
The Centre is in discussions with Payment Aggregators and other platforms that onboard merchants to ensure that the newly introduced UPI MDR does not become an additional cost for customers. According to government sources, the discussions are focused on how the new Merchant Discount Rate framework will be implemented from October 15, 2026, while keeping customer payments through UPI free.
The development comes after the government announced a 0.4% MDR on selected person-to-merchant (P2M) UPI transactions above ₹2,000. The charge is intended to be borne within the merchant payment ecosystem rather than directly by the individual making the payment. The Finance Ministry has also advised banks to ensure that merchants do not pass the cost on to consumers.
What Is the New UPI Transaction Fee?
Under the new framework, a Transaction Fee in the form of MDR will apply to certain higher-value merchant payments made through UPI. From October 15, 2026, a 0.4% Merchant Discount Rate will apply to eligible P2M transactions above ₹2,000.
For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction. Person-to-person UPI transfers will continue to remain free, regardless of the amount transferred. Similarly, eligible merchant transactions up to ₹2,000 will remain outside the MDR framework.
Read more: UPI Charges From October 15: Who Pays, How Much And What Stays Free?
The important point for consumers is that the new MDR is not being introduced as a direct fee for using UPI. The government has specifically stated that individuals should not be charged a platform fee, transaction fee or similar charge for sending or receiving money through UPI.
Centre Wants Merchants to Bear the UPI MDR
The government’s latest discussions with payment aggregators are aimed at preventing a situation where merchants add the new MDR to customers’ bills. Payment aggregators play an important role in the digital payments ecosystem because they provide merchants with payment acceptance and settlement services.
Government officials have indicated that implementation will be monitored closely once the new framework takes effect. Reports say the Centre plans to monitor the system daily from October 15 to identify whether the MDR is being passed on to consumers.
This monitoring is significant because policymakers want to preserve consumer confidence in Digital Payments. UPI has become an important part of India’s everyday payment infrastructure, and a direct customer charge could potentially affect how consumers choose between digital payments and cash.
Most UPI Payments Will Continue to Remain Free
The new framework does not mean that every UPI payment will attract a fee. A large majority of everyday transactions will continue to remain outside the MDR structure.
Person-to-person transfers will remain free, while P2M transactions up to ₹2,000 will also continue without MDR. Certain small merchants and specified categories have additional protections or concessional treatment under the framework. UPI AutoPay and recurring UPI mandates are also excluded from the prescribed MDR, according to NPCI’s FAQs.
This distinction is important because headlines about a new UPI fee could otherwise create the impression that consumers will have to pay for every digital payment.
Role of Payment Aggregators in the New Framework
Payment Aggregators are expected to have an important role in ensuring that the new MDR structure is implemented correctly. Since aggregators facilitate merchant payments, their systems will need to reflect the applicable charges and ensure that customer-facing payment flows comply with the government’s instructions.
The Centre’s engagement with aggregators also reflects the broader effort to create a sustainable commercial model for the UPI ecosystem. For years, UPI payments operated under a zero-MDR model for most transactions, with the government using incentive mechanisms to support the ecosystem.
The new framework introduces charges for a limited category of larger merchant transactions while retaining free access for individuals and smaller transactions.
Why the UPI MDR Decision Matters for Digital Payments
The introduction of UPI MDR represents a significant change in India’s digital payments ecosystem. Payment companies, banks and other participants have historically operated in an environment where UPI merchant transactions largely did not carry a conventional MDR.
The government has argued that a sustainable revenue model is necessary to support continued investment and innovation in payment infrastructure. At the same time, policymakers are attempting to ensure that the transition does not create a direct financial burden for ordinary UPI users.
For merchants, the impact will depend on transaction size, business category and applicable exemptions. For consumers, the government’s stated position is that using UPI should continue to remain free.
What Customers Should Know About UPI Charges
Customers should distinguish between an MDR charged within the merchant payment ecosystem and a direct Transaction Fee charged to a UPI user. Under the announced framework, the customer is not supposed to pay the new MDR.
From October 15, consumers can continue using UPI for personal transfers without a transaction charge. Eligible merchant payments up to ₹2,000 will also remain free, while selected higher-value merchant transactions will attract MDR at the merchant-payment level.
The Centre’s talks with payment aggregators are therefore focused on implementation and enforcement rather than reversing the announced framework. Government sources have also indicated that the Centre does not currently expect the new structure to cause a major shift from UPI towards cash.
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Conclusion
The Centre’s engagement with Payment Aggregators highlights its effort to ensure that the new UPI MDR framework does not translate into a direct cost for customers. While a 0.4% Merchant Discount Rate will apply to eligible P2M transactions above ₹2,000 from October 15, 2026, UPI users are expected to continue accessing personal payments and eligible low-value merchant payments without a direct fee.
As implementation begins, monitoring by the government, banks and payment platforms will determine how effectively the new rules protect customers while creating a more sustainable model for India’s rapidly expanding Digital Payments ecosystem.
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