UPI payments above ₹2,000: Who will pay the 0.4% MDR? FM clarifies banks, payment gateways & apps to get a share | Check breakdown
Finance Minister Nirmala Sitharaman clarified that the new 0.4% Merchant Discount Rate (MDR), a fee paid by merchants for processing payments, on specified Unified Payments Interface (UPI) merchant payments above ₹2,000 will be charged to merchants, not customers, starting October 15, 2026. The new fee aims to cover operational costs and fund future infrastructure development for the UPI ecosystem. The collected MDR will be distributed: 40% will go to customer banks, 30% to payment gateways, and 20% to UPI apps, ensuring stakeholders get a share. This clarifies earlier misconceptions about consumers bearing the cost.
What this means
For banks, especially those with large UPI customer bases, this MDR introduces a new revenue stream, helping offset the costs associated with maintaining and upgrading UPI infrastructure. It could incentivize banks to promote UPI further, but also increases pressure to differentiate services for merchants. Merchant acquisition teams will need to be well-versed in explaining this structure.
Most affected: Banks (issuing & acquiring), Merchants, Payment gateways
Key takeaway: Banks should communicate clearly with merchant partners about the new UPI MDR structure and its implications to maintain trust and smooth adoption.
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