UPI MDR Rollout May Be Deferred To January 2027 Amid Pushback By Retailers

The introduction of a merchant discount rate (MDR) on select UPI transactions may be deferred from October 15 to January 1, 2027, amid pushback from retail traders’ associations.

A proposal to postpone the rollout is under consideration, with a final decision expected in the coming days, Business Standard reported. A deferment would keep eligible merchant payments free of MDR through the festive season.

Members of the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), met yesterday to discuss the rollout and clarify aspects of the framework, the report said.

The committee is also considering exempting businesses with annual turnover of up to ₹40 Lakh, the report added. This would significantly expand the proposed exemption from the earlier framework, under which small merchants receiving up to ₹1 Lakh a month through UPI QR codes directly into their bank accounts were to be spared the fee.

Inc42 has reached out to NPCI for comment on the development. The story will be updated based on its response.

MDR is a fee merchants pay for processing digital payments. Under the announced framework, a 0.40% charge would apply to eligible person-to-merchant (P2M) UPI transactions above ₹2,000, capped at ₹300 per transaction.

Specified categories, including bill payments, utilities, education, and fuel, would attract a flat fee of ₹5 per transaction above ₹2,000. Consumers will not have to pay MDR.

The ₹2,000 transaction threshold is expected to remain unchanged, according to the report. Separately, authorities are considering raising the daily UPI transaction limit for certain categories from ₹1 Lakh to ₹2 Lakh.

Retailers Push Back Against MDR

Retail traders’ associations have opposed the framework, arguing that the charges would increase payment costs for businesses operating on thin margins.

The All India Mobile Retailers Association (AIMRA) and All India Consumer Products Distributors Federation (AICPDF) had called for a ‘No UPI Day’ on October 2. They withdrew the planned protest after meeting finance minister Nirmala Sitharaman on September 30.

AIMRA has sought a fixed, nominal charge for digital transactions instead of the proposed 0.40% MDR. AICPDF, meanwhile, has estimated that the fee could add ₹7,000 Cr–₹9,000 Cr in annual costs across the FMCG distribution and retail ecosystem.

The framework would mark a shift from the zero-MDR regime. Payments up to ₹2,000, person-to-person (P2P) transfers, and eligible small-merchant transactions would remain exempt.

The Centre has told the Supreme Court that around 96% of merchant transactions would remain unaffected, putting the share covered by the framework at about 4%.

The fee would create a revenue stream for banks, payment service providers, and third-party application providers (TPAPs).

Under the standard 0.40% structure, the acquiring bank collects MDR from the merchant and pays 0.28% of the transaction value to the issuing bank as an interchange. The issuing bank then pays 0.12% to the payer-side payment service provider bank, which passes 0.08% to the UPI app provider.

This comes as UPI transactions continue to grow in the country. UPI recorded 24.07 Bn transactions worth ₹29.37 Tn in September. Transaction volume rose 22.6% YoY, while transaction value increased 18% YoY.

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