UPI merchant fee rollout deferred until after Diwali amid cost concerns
The planned levy on select merchant payments above ₹2,000 will begin on a date to be announced. Consumers remain exempt, but retailers face questions over margins, pricing and payment preferences.
The postponement changes the October 15 commencement date set out in the government’s September framework; it does not withdraw the planned charges.
MUMBAI: The rollout of merchant discount rate (MDR) charges on select Unified Payments Interface (UPI) transactions has been deferred until immediately after Diwali, giving merchants and payment providers more time to prepare for the change.
In a statement issued on October 13, the National Payments Corporation of India (NPCI) said its UPI and Services Steering Committee had taken the decision keeping the festive season in mind. A revised implementation date will be notified separately.
The postponement changes the October 15 commencement date set out in the government’s September framework; it does not withdraw the planned charges.
Under that framework, eligible person-to-merchant payments above ₹2,000 attract a 0.4% MDR, capped at ₹300 per transaction. Consumer payments and person-to-person transfers remain free. Payments up to ₹2,000 are exempt, as are qualifying micro-merchants in the P2PM category receiving up to ₹1 lakh monthly through UPI. Certain merchant categories have separate rates.
MDR is a payment-processing cost borne by the merchant, rather than a fee automatically charged to the customer. At the standard rate, an eligible ₹5,000 purchase would cost the merchant ₹20.
The policy marks a shift after more than six years of zero-MDR UPI acceptance. Retailers had opposed the introduction, particularly its timing. The Confederation of All India Traders welcomed the deferral following a September 30 meeting between trade representatives and the finance minister, Reuters reported.
The government’s rationale is that payment infrastructure needs predictable funding for reliability, cybersecurity, innovation and customer support. Its explanatory document argues that reliance on subsidies creates investment uncertainty and that a commercial revenue model could help smaller payment companies compete.
For merchants, the central concern is how the additional expense affects thin margins. Although consumers are formally exempt, businesses could potentially recover costs through broader pricing changes or encourage alternative payment methods. These are possible consequences, rather than outcomes established by the announcement.
Another implementation challenge is ensuring merchants understand their classification and exemptions. A payment exceeding ₹2,000 does not, by itself, make an exempt micro-merchant liable for MDR.
The post-festival transition will therefore require clear communication on eligible transactions, settlement deductions and grievance handling. For policymakers and the payments industry, the test will be whether the new funding model strengthens UPI without weakening the affordability and convenience that helped drive its adoption.
