UPI gets a merchant fee from 15 October, on payments above ₹2,000
NPCI has set a 0.4% merchant discount rate on person-to-merchant transactions over ₹2,000, capped at ₹300. Customers pay nothing, and small merchants taking under ₹1 lakh a month are exempt.
India's retail payments body has introduced a merchant fee on large UPI transactions, ending the system's status as free at every level.
From 15 October, person-to-merchant UPI payments above ₹2,000 will carry a merchant discount rate of 0.4%, capped at ₹300 on a single transaction.
What a merchant discount rate is, and who pays it
A merchant discount rate is the fee banks and payment service providers charge a merchant for processing a digital payment. It is deducted from what the merchant receives.
The National Payments Corporation of India has been explicit that it does not reach the customer. Under the revised system, customers will not be charged for making UPI payments.
So the change is a transfer from merchants to the institutions that process their payments, not a charge on the public.
Where the threshold falls
The fee applies only above ₹2,000, and that threshold is where most of UPI's volume sits below.
Payments of ₹2,000 or less are unaffected, and those account for more than 95% of total person-to-merchant UPI transaction volume. The cap of ₹300 applies to transactions of ₹75,000 or more, which means the effective rate falls away above that point.
Railways, telecom, insurance and fuel payments above ₹2,000 attract a flat fee of ₹5 instead of the percentage.
The exemption for small merchants
Merchants under the person-to-person-merchant framework are exempt regardless of transaction size.
That covers merchants receiving up to ₹1 lakh a month through UPI QR codes directly into their accounts.
A merchant moves into the standard person-to-merchant category, and so into the fee, only if inward UPI credits exceed ₹1 lakh for three consecutive months. One good month does not do it.
What NPCI says it is for
The corporation published a set of frequently asked questions on 15 September setting out the framework, under the heading of a merchant discount rate on select UPI person-to-merchant transactions.
Its stated purpose is creating a sustainable funding model for the UPI ecosystem, covering infrastructure, cybersecurity and innovation.
That is the corporation's stated reason, and it is the only one it has given.
What it does not settle
The framework sets the rate and the exemptions. It does not say how banks and payment providers will divide the fee between themselves, or whether merchants above the threshold will adjust prices in response.
What it settles is narrow and precise: merchants above ₹2,000, at 0.4%, from 15 October, with the customer paying nothing.
Sources
- Business Today — Business Today Desk, 15 Sep. 0.4% on P2M above Rs2,000 from 15 Oct, capped at Rs300; P2PM merchants exempt up to Rs1 lakh a month via UPI QR, moving to P2M only after three consecutive months above it; sub-Rs2,000 payments are over 95% of P2M volume; no consumer-facing charge; NPCI FAQs published 15 Sep; sustainable funding model rationale.
- The Free Press Journal — Deeksha Pandey, 15 Sep. Definition of MDR as a fee charged to merchants by banks and payment service providers; 0.4% above Rs2,000 capped at Rs300 for transactions of Rs75,000 or more; customers not charged; P2PM exemption up to Rs1 lakh a month; flat Rs5 on railways, telecom, insurance and fuel above Rs2,000.
