UPI Zero-Fee Era Ends: NPCI Rolls Out 0.4% MDR on Large Merchant Transactions

India’s Unified Payments Interface (UPI) is set to conclude its completely fee-free era for large commercial transactions starting October 15, as the National Payments Corporation of India (NPCI) introduces a tiered Merchant Discount Rate (MDR). Peer-to-person (P2P) transfers and everyday consumer purchases remain entirely free.

The framework introduces a 0.4% fee on Person-to-Merchant (P2M) payments exceeding ₹2,000, capped at ₹300 for ticket sizes of ₹75,000 or more. The collected revenue will be shared across the payment pipeline—including issuing banks, acquirers, and payment service providers (PSPs)—to sustainably fund server capacity, fraud prevention, and security infrastructure.

Key Strategic Takeaways

• Targeted Impact: Government estimates suggest only roughly 4% of total merchant transactions will be affected, shielding the vast majority of micro-merchants and high-frequency, low-ticket daily payments.
• Transition from State Subsidies: The policy marks a structural shift away from direct government funding (such as budgetary outlays for payment incentives) toward market-driven cost recovery.
• Adoption Support: Five percent of all collected MDR will be directed into a dedicated corpus to subsidize digital payment infrastructure and adoption for small vendors.
• Checkout Enforcement: Financial authorities have strictly prohibited merchants and third-party apps from levying hidden convenience fees or passing MDR surcharges directly onto consumers.