UPI MDR proposal: 5% of collections to help small merchants
What's the story
The National Payments Corporation of India (NPCI) has proposed a dedicated fund, financed from Merchant Discount Rate (MDR) collections, to support small merchants and expand digital payment infrastructure in smaller cities. The move comes as India prepares to introduce MDR on select Unified Payments Interface (UPI) transactions from October 15. The fund will support merchant onboarding, encourage higher UPI transaction volumes among existing small merchants, and help build digital payment infrastructure across Tier 3 to Tier 6 centers.
Fund allocation
Fund will cover notified central government schemes
The proposed fund will also cover notified Central government schemes in other locations.
It will provide financial assistance to ecosystem players for merchant onboarding and encouraging UPI usage among existing small merchants.
The fund will also support digital payment infrastructure in Tier 3 to Tier 6 locations, including the Northeast India, Jammu & Kashmir, and Ladakh.
An amount equivalent to 5% of total MDR collections will be contributed to this fund.
Revenue sustainability
UPI has operated under zero-MDR regime since January 2020
The new MDR framework is intended to provide a more sustainable revenue model as the payment network continues to expand.
UPI has operated under a zero-MDR regime since January 2020, when the government introduced the framework to encourage digital-payment adoption.
The MDR collected will be distributed among participants in the UPI ecosystem and will help support areas such as payment infrastructure, cybersecurity, fraud prevention, and customer service.
Charge details
What is the new MDR framework?
MDR is not a charge imposed on consumers but applicable charges levied on eligible merchant transactions within the payment ecosystem.
The new framework keeps small merchants under the P2pm category outside MDR. Merchants receiving up to ₹1 lakh a month through UPI QR codes will continue to enjoy zero MDR, according to NPCI's framework.
Transactions of up to ₹2,000 will also remain free.
Target focus
Proposed fund connects higher-value merchant payments with digital-payment-expansion efforts
The Finance Ministry has said nearly 96% of P2M transactions will remain unaffected by the new MDR framework.
This means the new MDR will primarily apply to higher-value merchant payments rather than everyday low-value UPI transactions.
The proposed fund connects MDR collections from eligible higher-value merchant payments with efforts to bring more small merchants into the digital-payment ecosystem and strengthen infrastructure in less-served parts of India.