'96% transactions will not be affected,' says former Infosys CFO Mohandas Pai on UPI MDR

The Centre’s decision to introduce a Merchant Discount Rate (MDR) on high-value UPI transactions has triggered discussion over its impact on consumers and merchants. Under the new framework, a 0.4% MDR will apply to eligible Person-to-Merchant (P2M) UPI transactions above ₹2,000 from October 15, 2026, while person-to-person payments will remain free, according to ANI.

CA and former Infosys CFO Mohandas Pai, speaking on the issue, said that the impact would be limited because most UPI transactions fall outside the new MDR category.

“96% of UPI transactions will not be affected by MDR at all. Because roughly 70% of all payments are person-to-person (P2P), which carry no charges whatsoever. The remaining payments below ₹2,000 are also completely exempt,” Pai told ANI.

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Pai also explained that MDR should not be confused with a tax. He said it is a payment made to banks and payment service providers for processing transactions, similar to the processing charges associated with credit-card payments.

“Only transactions above ₹2,000 will be subject to a nominal MDR. It is important to clarify that MDR is not a tax. It is a payment made to the banks and payment providers, similar to how credit cards work.”

He further pointed to the possibility of splitting a payment to remain below the threshold, giving the example of a ₹2,500 payment being divided into ₹1,500 and ₹1,000. He also questioned whether MDR should have been introduced earlier, arguing that banks, fintech firms and digital-payment companies have historically borne significant infrastructure costs.

“If someone is to make a payment of ₹2,500, most people will simply split it into two smaller payments. By paying ₹1,500 and ₹1,000, they easily remain below the ₹2,000 threshold.”

Pai also highlighted the growing scale of UPI and the investment required to maintain real-time payment infrastructure. According to him, transaction volumes are expected to rise significantly, requiring further upgrades to the underlying technology and systems.

“We operated under a completely free regime for a long time, placing the heavy burden of investment entirely on banks, fintech startups and digital payment companies. The financial losses and capital investments required to maintain this infrastructure have been huge,” Pai told ANI.

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The new MDR framework is intended to create a revenue stream for the UPI ecosystem while keeping P2P payments and eligible low-value transactions free. Reuters reported that UPI processed 24.5 billion transactions worth ₹29.8 lakh crore in August 2026, underlining the scale of the infrastructure involved.

Pai said the increasing transaction volumes will require continued investment in technology and real-time processing capacity, raising the question of who should ultimately bear those costs.

“With transaction volumes expected to grow from 24 billion to 50 billion in two years, the entire IT infrastructure must be upgraded to support real-time processing. Who is going to fund that upgrade?”