Small UPI MDR Fee Will Not Impact Transaction Volumes, Says RBI Governor

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said the introduction of a small Merchant Discount Rate (MDR) on select Unified Payments Interface (UPI) transactions is unlikely to affect the momentum or volumes of digital payments in the country.

“The MDR decision has already been taken. As of now, we do not see any drop in volumes. I don’t personally think a small fee will have any impact on UPI volumes,” Malhotra said at a press conference in Mumbai following the RBI’s monetary policy announcement.

His remarks came about a week before the new payment framework for UPI transactions is scheduled to take effect. From October 15, an MDR of 0.4 per cent will apply to specified person-to-merchant (P2M) UPI transactions above Rs 2,000.

The government has clarified that the revised framework will not affect person-to-person (P2P) transactions. UPI will continue to remain free for all P2P transfers, regardless of the amount.

Merchant payments of up to Rs 2,000 will also remain free, along with transactions covered under the zero-MDR framework for small merchants. As a result, around 96 per cent of all P2M transactions are expected to remain unaffected.

The MDR will apply only to specified merchant transactions exceeding Rs 2,000.

The Finance Ministry has clarified that MDR is neither a tax nor a government or NPCI charge. It is distributed among participants in the payments ecosystem, including banks and payment service providers, to support the operation and expansion of UPI.

Under the new framework, the nominal MDR of 0.4 per cent will apply only to eligible P2M transactions above Rs 2,000. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Transactions above Rs 2,000 in essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of Rs 5 per transaction.

The flat-rate mechanism is aimed at providing greater cost certainty for critical public services and businesses operating on narrow margins.