UPI MDR explained: 6 myths about the new framework and what it means for consumers and merchants

A newspaper advertisement published by the Startup Policy Forum (SPF) has sought to address six common misconceptions around the new Merchant Discount Rate (MDR) framework for UPI. The ad, which features comments from several fintech and payments executives, argues that the framework is aimed at creating a sustainable economic model for UPI without imposing charges on everyday users.

Myth 1: UPI will no longer be free for consumers

Reality: According to the ad, consumers will continue to pay zero, while the proposed 0.4% MDR would apply only to payments above ₹2,000 and would be paid by the merchant.

The distinction is important because the MDR is a charge associated with merchant transactions rather than a direct fee on consumers making UPI payments.

Amrish Rau, Chairman, Managing Director and CEO of Pine Labs, said, “The introduction of MDR on UPI would materially change the narrative around fintechs. A sustainable revenue model would improve investor sentiment & give the fintech ecosystem a significant boost.”

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Myth 2: Merchants will pass the cost on to consumers

Reality: The advertisement says merchants cannot charge the MDR directly to consumers. It also states that merchants receiving up to ₹1 lakh per month will pay zero MDR.

BharatPe CEO Nalin Negi said, “The new MDR framework keeps UPI free for consumers while building a stronger, more sustainable payments ecosystem. Micro & small merchants stay protected with zero MDR.”

Myth 3: Small shops and street vendors will be charged

Reality: The framework highlighted in the ad says smaller merchants will remain protected through the zero-MDR threshold. The focus is instead on eligible higher-value merchant transactions.

Sambhav Jain, Co-Founder of Fam, said the framework is a step towards targeting specific transactions: “This is a thoughtful, forward-looking step for UPI. By limiting MDR to specific high-value merchant transactions, the framework keeps the vast majority of everyday users unaffected.”

Myth 4: MDR is a government tax

Reality: The advertisement says MDR is not a government tax and that the revenue would support the broader UPI infrastructure.

Bhavin Patel, CEO and Co-Founder of Vartis Platforms & LenDenClub, said, “India has built payment infrastructure capable of scaling globally, but it cannot run indefinitely at zero economics. A rational MDR is about keeping the ecosystem sustainable & innovating.”

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Myth 5: Sending money to family or using UPI AutoPay will cost extra

Reality: The ad says person-to-person transfers and UPI AutoPay will remain free, meaning the MDR framework is presented as being focused on specified merchant transactions.

Shruti Aggarwal, Co-Founder of Stashfin, said, “Zero MDR drove UPI’s hyper-adoption, but long-term health needs sound economics. A balanced 0.4% MDR lets banks & fintechs reinvest in infrastructure, cybersecurity & reliability.”

Myth 6: MDR was introduced because of foreign pressure

Reality: The advertisement frames MDR as a measure intended to strengthen the domestic UPI ecosystem rather than as a response to foreign pressure.

Nishchay Aggarwal, Founder & CEO of Jar, said, “MDR gives the core use case an economic value of its own. That attracts fresh investments, new players and more innovation. It’s a welcome move.”

Bipin Preet Singh, Co-Founder, MD and CEO of MobiKwik, summed up the industry argument: “UPI has transformed how India pays, but sustaining this growth needs continued investment in infrastructure, security & innovation.”

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