UPI vs debit card vs credit card MDR: How much does each payment method cost merchants?

The introduction of Merchant Discount Rate (MDR) on select UPI merchant payments from October 15 will add a new payment-acceptance cost for eligible businesses. However, the new UPI MDR cannot be directly equated with the charges applicable to debit and credit cards, as each payment instrument operates under a different regulatory and commercial framework.

Under the new National Payments Corporation of India (NPCI) framework, an MDR of 0.4% will apply to eligible Person-to-Merchant (P2M) UPI transactions above ₹2,000, subject to a maximum charge of ₹300 per transaction. The charge is payable by the merchant, while customers will continue to make UPI payments without a transaction fee. Person-to-person payments are also outside the framework.

For example, a merchant accepting an eligible UPI payment of ₹5,000 would face an MDR of ₹20. At ₹50,000, the charge would be ₹200. The ₹300 cap becomes relevant once the transaction value reaches ₹75,000.

How does UPI compare with debit cards?

Debit-card MDR follows a separate Reserve Bank of India framework. Under RBI's December 2017 rules, the maximum MDR for small merchants with annual turnover of up to ₹20 lakh was 0.40% for physical point-of-sale and online card transactions and 0.30% for QR-code-based card acceptance, subject to a ₹200 per-transaction cap.

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For other merchants, the corresponding ceilings were 0.90% and 0.80%, respectively, subject to a ₹1,000 cap.

This means the new 0.4% UPI rate overlaps with some historical debit-card MDR ceilings, but the two cannot be treated as identical charges because their applicability, thresholds and caps differ.

What about credit cards?

Credit-card payments operate under a different MDR structure. There is no single RBI-prescribed rate applicable to all credit-card transactions that can be directly compared with the new 0.4% UPI MDR.

The merchant's actual credit-card acceptance cost can depend on commercial arrangements involving card networks, issuers, acquirers and payment service providers.

Industry executives have said UPI remains relatively inexpensive for merchants compared with many card-based acceptance arrangements even after the new MDR. Experts said the framework could provide a path towards sustainable business models for payment ecosystem participants, while some said UPI remains significantly cheaper than most card-based acceptance.

For merchants, therefore, the key change is not that UPI has become identical to cards, but that specified higher-value UPI transactions will now carry a defined merchant-side acceptance cost. The actual impact will depend on transaction values, merchant category and the payment instrument customers choose.

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