UPI Transactions and Merchant Discount Rate (MDR)
The UPI and Services Steering Committee has made a significant decision regarding the Merchant Discount Rate (MDR) for UPI transactions. Here are the key points:
MDR Details
- The MDR is set at 0.4 percent for person-to-merchant UPI transactions exceeding ₹2,000.
- For transactions amounting to ₹75,000, the MDR is capped at ₹300, which merchants are responsible for paying.
- Consumers are exempt from the MDR, and there will be no fees on person-to-person transactions.
Government Notification
The Union government has issued a notification preventing banks and system providers from imposing charges on individuals for electronic payments, specifically targeting RuPay-powered debit cards and UPI transactions up to ₹2,000.
Legislative Background
This decision follows the passage of the Taxation and Other Laws (Amendment) Bill, 2026, which amended the Payment and Settlement Systems Act, 2007, enabling these changes.
UPI Transaction Growth
- UPI has experienced a remarkable growth with a CAGR of 188 percent in transaction volumes from 2016-17 to 2025-26.
- The average transaction value increased by a CAGR of 155 percent during the same period.
- On average, the system handles 660 million daily transactions.
- In 2025, UPI accounted for 49 percent of global real-time payment transaction volumes.
Financial Sustainability
- A parliamentary committee noted that the government's incentive only covers 11 percent of the cost and 14 percent of potential MDR collection.
- Charging MDR for transactions above ₹2,000 is seen as a viable solution for financial sustainability.
- Transactions above ₹2,000, while only 4-5 percent of the total, represent about 70 percent of the transaction value.
Implications of MDR
- The modest MDR rate aims to balance system development and funding.
- It supports the profitability of banks and fintech companies, encouraging further investment in services and cybersecurity.
- A reasonable MDR fosters healthy market competition, avoiding a duopoly.
- Though concerns exist that MDR might drive people back to cash, cash handling also incurs costs.
