A new charge structure for UPI payments will be implemented from October 15, affecting only certain transactions. Under the new Merchant Discount Rate (MDR) framework, merchants will incur a 0.4 per cent charge on direct UPI payments when the amount exceeds Rs 2,000. However, customers making these payments will not be charged directly. Instead, the merchant will handle the transaction fees, potentially raising questions about indirectly affecting consumer costs.

The new system stipulates that for transactions of Rs 75,000 or greater, the maximum charge applicable will be Rs 300. For example, a Rs 3,000 payment will result in an MDR of Rs 12, which is absorbed by the merchant without any additional cost being passed on to the customer.

Transactions that do not exceed Rs 2,000 will remain exempt from these new charges, making most everyday UPI payments unaffected by this change. According to the new regulations, merchants are prohibited from adding any surcharge to transactions due to this MDR, ensuring customers always pay the displayed price.

Impact of the MDR on Transactions

The revised MDR system will only impact Person-to-Merchant (P2M) transactions above Rs 2,000. For lower amounts, such as Rs 100 or Rs 1,500, consumers will not experience any additional fees. This change is significant, as over 95 per cent of P2M UPI transaction volume comprises such transactions, thus ensuring that the majority of daily payments will continue unaffected.

For larger payments, such as Rs 10,000 or Rs 50,000, the fees will be proportionately higher but will still be capped at Rs 300 for any payment exceeding Rs 75,000. This cap also implies that higher transactions will yield a lower MDR than traditional card payments, which are generally more expensive.

Specific services, including railways and telecommunications, will benefit from a flat MDR of Rs 5 on transactions over Rs 2,000, providing further cost savings for consumers who frequently utilise these services. This rate contrasts with the general 0.4 per cent for standard merchant transactions.

Considerations for Small Merchants and Pricing

Small merchants receiving payments of up to Rs 1 lakh per month through UPI QR codes will remain exempt from the new MDR framework. This exemption supports small vendors by ensuring that they will not be burdened with additional fees, even if a particular transaction exceeds Rs 2,000.

Nonetheless, the new framework allows merchants some flexibility in how they price their items. While they cannot directly pass the MDR charge to customers, they might raise their overall prices to account for increased operational costs. The prevailing business dynamics will determine how merchants choose to handle the new fees, and economic incentives may prevent significant price inflation.

The government anticipates that these changes will lead to a more sustainable UPI ecosystem by reducing reliance on subsidies for infrastructure enhancements. The revenue generated from the MDR will be reinvested into the UPI system to advance technology and services, ensuring a resilient digital payments framework moving forward.

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