The National Payments Corporation of India (NPCI) has strongly defended its proposed Merchant Discount Rate (MDR) framework for the Unified Payments Interface (UPI) before the Supreme Court, submitting in a formal affidavit that continuing a blanket zero-MDR policy is financially unsustainable for banks and payment service providers.
Addressing a public interest petition challenging merchant charges, NPCI clarified that the proposed 0.4% MDR (capped at ₹300) will apply strictly to a selective 4% to 5% of Person-to-Merchant (P2M) transactions valued above ₹2,000, leaving small vendors and ordinary consumers completely insulated. Read our previous coverage on digital innovation in India & EU Conclude Talks on €93.5 Billion Horizon Europe Pact.
01. NPCI UPI MDR Framework: Key Rules & Thresholds
| Parameter | Proposed Framework Details |
|---|---|
| Transaction Type Covered | Person-to-Merchant (P2M) transactions above ₹2,000 only |
| Applicable MDR Rate | 0.4% per transaction (Capped at maximum ₹300) |
| Consumer Impact | Zero Charges (100% Free for all retail users) |
| Peer-to-Peer (P2P) Transfers | Completely exempt (Zero fee) |
| Small Merchant Exemption | Merchants receiving up to ₹1 Lakh/month via QR remain at 0% MDR |
| Adoption Fund Contribution | 5% of collected MDR routed to Small Merchant Adoption Fund |
| Rollout Timeline | Deferred for festive window; implementation scheduled post-Diwali |
02. Why NPCI Argued Zero-MDR Is Unsustainable
In its detailed counter-affidavit, NPCI highlighted the mounting capital expenditure required to maintain real-time banking servers, prevent transaction timeouts, and expand cybersecurity measures across billions of monthly transactions:
- Infrastructure Capex Burden: Acquirer banks, payment aggregators, and fintechs bear heavy infrastructure costs without transactional revenue, relying hitherto on ad-hoc government subsidies.
- Targeted High-Value Transactions: NPCI noted that over 95% of UPI transactions are micro-payments under ₹2,000, meaning small traders and street vendors will see zero impact.
- Level Playing Field: At 0.4%, the UPI MDR remains significantly below credit card interchange rates (typically 1.5% to 2.5%) and debit card ceilings.
03. Frequently Asked Questions (FAQ)
Will ordinary users be charged for UPI payments under the new rules?
No. UPI remains 100% free for consumers. Peer-to-person (P2P) transfers and everyday purchases incur zero fees for users.
Which merchants have to pay the 0.4% UPI MDR?
Only commercial merchants processing individual customer transactions above ₹2,000 and receiving over ₹1 lakh per month in total UPI collections are subject to the 0.4% fee (capped at ₹300).
When will the UPI MDR take effect?
NPCI deferred the rollout across the festive season, with go-live scheduled for a notified date immediately following Diwali 2026.
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05. Sources
- National Payments Corporation of India (NPCI): Counter-Affidavit on UPI Interchange and MDR Architecture submitted to the Supreme Court of India, November 2026.
- The Times of India & BFSI Network: NPCI Defends UPI MDR Framework Before Supreme Court: Zero-MDR Financially Unsustainable, November 2026.
NewsY Banking & Fintech Desk: Fee caps, volume thresholds, and implementation timelines reflect official court submissions and circulars published by NPCI.
