The National Payments Corporation of India (NPCI) has announced new charges for certain Unified Payments Interface (UPI) transactions, set to take effect from October 15, 2026. The move has sparked debate, with the government assuring that the impact on consumers and merchants will be minimal.
Under the new guidelines, a Merchant Discount Rate (MDR) of 0.4% will be applied to UPI payments exceeding ₹2,000, affecting mid- to large-sized merchants. For transactions of ₹75,000 and above, the MDR will be capped at ₹300. Essential sectors such as railways, telecommunications, insurance, fuel, and agricultural inputs will see a flat MDR of ₹5 per transaction for amounts over ₹2,000, providing cost certainty for these critical services.
Capital market transactions, including payments to mutual funds, stockbrokers, and dealers, will incur an MDR of 0.02%, also capped at ₹300. This lower rate aims to encourage retail participation in financial markets.
Despite these charges, the vast majority of UPI transactions will remain unaffected. Person-to-Person (P2P) transactions, which account for 37% of total UPI transaction volume, will continue to be free. Additionally, payments to merchants up to ₹2,000, comprising 60.5% of UPI transactions, will not attract any MDR. Thus, 97.5% of all UPI transactions will remain free of charge.
Small merchants, including street vendors receiving up to ₹1 lakh per month This further reduces the proportion of chargeable UPI payments to below 2.5%.
The MDR collected will be distributed among various participants in the payment ecosystem. The payer's bank, which handles the customer's account and transaction security, will receive 40% of the MDR. Yes Bank, being the payer bank in over 50% of UPI transactions, stands to gain significantly, followed by ICICI Bank at 18.3%.
The merchant's bank, responsible for managing merchant relationships and settlements, will receive 30% of the MDR. Yes Bank also leads in this category, being the payee in about 55% of transactions, with Axis Bank following at 19%.
UPI applications or Third-Party Application Providers (TPAPs) will claim 20% of the MDR. PhonePe and Google Pay, which dominate the UPI transaction volume with 46% and 32% respectively, are poised to benefit the most.
The remaining 10% of the MDR will go to the Payment Service Provider that connects the UPI application to the central network switches. To promote UPI adoption among small merchants, a dedicated fund will be established, with 5% of total MDR collections contributing to this initiative.
In August 2026, UPI transactions totaled ₹29.8 lakh crore, with P2M transactions above ₹2,000 accounting for ₹5.99 lakh crore. The potential maximum earnings from MDR could reach ₹2,400 crore monthly or ₹28,000 crore annually. However, due to various exemptions and caps, the actual amount will likely be lower.
