UPI MDR vs cards: Is UPI still cheaper for merchants despite the new charges on ₹2,000+ payments?

The introduction of Merchant Discount Rate (MDR) on select UPI transactions has changed the cost structure of digital payments for merchants. However, UPI continues to have a lower stated transaction charge than cards under the framework cited by Motilal Oswal Financial Services (MOFSL). The report puts the standard UPI P2M MDR at 0.40%, compared with 1.5–2.5% for credit cards and up to 0.90% for debit cards.

UPI vs credit cards: How much does a merchant pay?

Under the new framework, standard P2M UPI transactions above ₹2,000 and below ₹75,000 attract an MDR of 0.40%. For transactions of ₹75,000 or more, the rate remains 0.40%, but the charge is capped at ₹300.

For a ₹10,000 payment, a 0.40% UPI MDR translates into ₹40. A credit-card transaction at 1.5–2.5% would cost ₹150–₹250, while a debit-card transaction at up to 0.90% would cost up to ₹90.

Payment method	Indicative MDR	MDR on ₹10,000	MDR on ₹1 lakh
UPI – standard P2M	0.40%	₹40	₹300*
Credit card	1.5–2.5%	₹150–₹250	₹1,500–₹2,500
Debit card	Up to 0.90%	Up to ₹90	Up to ₹900
UPI – capital markets	0.02%	₹2	₹20
UPI – essential sectors	₹5 flat	₹5	₹5

*UPI standard P2M MDR is capped at ₹300 for transactions of ₹75,000 or more. The card rates are the indicative rates cited in the MOFSL report.

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₹300 cap makes UPI cheaper on high-value payments

The difference becomes more pronounced as the transaction value increases. At ₹1 lakh, 0.40% would mathematically result in a ₹400 MDR, but the UPI cap limits the charge to ₹300. By comparison, the report cites credit-card MDR of ₹1,500–₹2,500 and debit-card MDR of up to ₹900 at the same transaction value.

UPI also has special rates for several sectors. Railways, telecom, insurance, fuel, agricultural inputs and utility payments above ₹2,000 attract a flat ₹5 MDR rather than the standard percentage-based charge. On a ₹10,000 payment, the effective MDR is therefore just 0.05%.

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Capital-market UPI payments are even cheaper

The framework provides a substantially lower MDR for capital-market transactions. Payments towards mutual funds, securities, stockbrokers and dealers attract MDR of just 0.02%, with a ₹300 cap. A ₹10,000 transaction would therefore cost ₹2, while a ₹1 lakh payment would cost ₹20.

Most everyday UPI payments remain outside MDR

The impact is also limited by the scope of transactions covered. P2P UPI payments remain at 0% MDR, while P2M transactions up to ₹2,000 also remain free. Eligible small merchants under the P2PM framework can continue to pay zero MDR on inward UPI receipts up to ₹1 lakh a month, even if an individual payment exceeds ₹2,000.

MOFSL estimates that only around 4% of UPI transactions by count could attract MDR, although these transactions could account for 15–20% of UPI merchant GMV because the charge is linked to transaction value.

Overall, the report's data show that the introduction of MDR does not eliminate UPI's cost advantage over cards. For standard transactions, UPI's 0.40% rate remains below the cited card rates, while the ₹300 cap and special ₹5 and 0.02% rates make the cost difference wider for several high-value categories.

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