'Important step': RBI backs new UPI charges, says all transactions remain free for users

The Reserve Bank of India (RBI) has backed the introduction of Merchant Discount Rate (MDR) on large-value UPI transactions. It called the move an important step towards the long-term sustainability of the digital payments ecosystem.

The government on Tuesday introduced a 0.4 per cent MDR on UPI payments above ₹2,000 to merchants, with the fee capped at ₹300 for payments of ₹75,000 and above.

"The introduction of MDR on large-value UPI transactions (i.e., above ₹2,000) is an important step towards strengthening the long-term sustainability of India's digital payments ecosystem," the RBI said in a statement on Tuesday.

Must Read: UPI MDR of 0.4% on transactions above ₹2,000 from October 15: What you need to know

The central bank said the move will help UPI "continue to scale, innovate and serve consumers and businesses across the country."

The RBI said a fair distribution of MDR among ecosystem participants would support continued investment in technology, infrastructure, and acceptance networks. "This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes," it said.

The move ends the zero-MDR regime that has been in place since January 2020. The regime was introduced to drive digital payments adoption but had been criticised by banks and fintechs as unsustainable.

Users Will Not Pay UPI Charges

The RBI stressed that users will not have to pay MDR.

"Importantly, all UPI transactions - P2P (person-to-person) and P2M (person-to-merchant) - shall remain free for users," it said. "P2M UPI transactions below ₹2,000 will continue to remain free for merchants, while MDR may be levied on merchants for P2M ."

Small merchants earning up to ₹1 lakh a month through UPI QR codes will remain fully exempt. The government has said the carve-out will keep around 96 per cent of merchant transactions unaffected.

Person-to-person transfers, which account for 37 per cent of UPI’s volume and 70 per cent of its value, will remain untouched.

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No Platform Fees, MDR Pass-Through

App providers will be barred from adding platform fees, while banks have been directed not to allow merchants to pass MDR costs on to customers.

A fifth of the new MDR pool will be used to fund UPI expansion among small merchants.

Essential sectors such as railways, telecom and fuel will attract a flat ₹5 fee per transaction, while capital-market payments will have a lower MDR of 0.02 per cent.