The central government has started discussions with payment aggregators and other stakeholders in the Unified Payments Interface (UPI) ecosystem to ensure that the newly introduced Merchant Discount Rate (MDR) does not become an additional cost for customers, sources said on Thursday.
The Finance Ministry is also working on a monitoring mechanism to track whether merchants pass the charge on to consumers. The move comes amid concerns that the new MDR could increase the cost of high-value UPI payments if businesses try to recover the fee from customers.
Under the new rules, a 0.4 per cent MDR will apply from October 15 to person-to-merchant UPI transactions above ₹2,000. The charge will be paid by merchants rather than customers. For transactions of ₹75,000 or more, the MDR will be capped at ₹300.
Government Steps Up Monitoring of UPI Charges
According to sources, the Finance Ministry has already begun engaging payment aggregators and other participants in the UPI ecosystem to explain the new MDR framework and ensure that consumers are not made to bear the cost.
There are concerns that some merchants could attempt to recover the fee by increasing the price of goods and services or by adding a separate charge for customers who choose UPI as their payment method.
The government does not expect the revised MDR structure to have a major effect on overall UPI usage. Sources said transactions affected by the new charge are expected to account for only around 4 per cent of total UPI transaction volume.
The new fee is also not expected to significantly encourage consumers to switch back to cash. RuPay debit card transactions will continue to remain free, irrespective of the transaction amount.
Sources also said the MDR is unlikely to create a significant inflationary impact because the transactions covered by the new charge represent a relatively small portion of total UPI payments.
Finance Ministry Rejects Allegations of US Influence
The development comes after the Finance Ministry rejected claims that the introduction of the MDR was the result of pressure from the United States.
The Department of Financial Services said the September 15 NPCI circular does not provide international credit cards with an advantage over RuPay. Under the existing system, RuPay credit cards are the only credit cards permitted for credit transactions through UPI.
“The allegation that MDR has been introduced under any external influence is patently false and misleading,” the DFS said in a post on X.
The clarification came after concerns were raised in the US Trade Representative’s 2026 report regarding the inability of US electronic payment providers to participate in UPI credit transactions on an equal footing with RuPay.
What the New MDR Means for UPI Payments
The MDR has been introduced as part of efforts to establish a sustainable revenue framework for India’s digital payments ecosystem. The new charge will apply only to specified high-value person-to-merchant UPI transactions, while person-to-person payments and most everyday merchant transactions will continue to remain free.
The Centre’s latest discussions with payment aggregators are aimed at ensuring that the cost of the MDR remains with merchants as prescribed, rather than being transferred to customers through additional UPI charges or higher prices.