Business & Finance

UPI Merchant Discount Rate to Affect Some Businesses, Survey Shows

By Salman SH

Bengaluru – India’s decision to impose a merchant discount rate (MDR) on certain UPI transactions will introduce new costs for some merchants, while most UPI payments to merchants will remain free. A survey included in How Urban India Pays 2026, a report by Pahlé India Foundation in partnership with Amazon Pay, found that 25 % of respondents expect to pay more than ₹5,000 a month, 58 % expect to pay ₹1,000 or less, and 13 % expect no charge. The MDR will apply to person‑to‑merchant UPI payments above ₹2,000, at a standard rate of 0.4 % capped at ₹300 per transaction. Person‑to‑person UPI payments will stay free. The National Payments Corporation of India (NPCI) announced the rate on 15 October and deferred the rollout until immediately after Diwali, with the revised implementation date to be announced later. Small merchants using the specified UPI QR arrangement are exempt, including on payments above ₹2,000, and will enter the fee‑paying category only after exceeding the monthly UPI‑receipts threshold for three consecutive months. NPCI rules prohibit passing the MDR on to customers; a genuine service fee must apply consistently across payment methods. The survey, covering 1,054 merchants, indicates that businesses expecting monthly MDR bills above ₹5,000 typically handle higher‑value sales. Some merchants suggested raising the transaction threshold to ₹5,000 or adopting a slab‑based structure. About 35 % of respondents reported monthly UPI receipts of ₹1 lakh or less, the turnover band relevant to the small‑merchant exemption. The report recommends clearer communication of the exemption and zero MDR on payments up to ₹2,000 to help smaller merchants understand their liability. Most merchants surveyed said the expected cost would be insignificant or only slightly significant, and would not have a major effect on their margins. The survey also found that 53 % of merchants receive more than half of their sales through UPI, with 35 % receiving 51–75 % and 18 % receiving more than three‑quarters. Only 3 % receive less than a tenth of their sales through UPI. Around 72.1 % of surveyed merchants expressed hesitancy about digital payments, citing settlement delays. The report recommends pairing MDR with faster settlement and working‑capital credit based on UPI transaction histories and business analytics.