UPI MDR Rollout May Be Deferred To January 2027 Amid Pushback By Retailers

What is changing in the proposed UPI MDR rollout, and why might it be deferred until January 1, 2027?

The main change is timing. A merchant discount rate on selected UPI payments may be deferred from October 15 to January 1, 2027. This would keep eligible merchant transactions free of MDR during the festive season. The proposal remains under consideration, with a decision expected in the coming days.

The delay follows pushback from retail traders’ associations. A committee led by NPCI met to discuss the rollout and clarify the framework. It is also considering a much broader exemption for businesses with annual turnover up to ₹40 Lakh. Earlier, only small merchants receiving up to ₹1 Lakh monthly through UPI QR codes directly into bank accounts were to be exempt.

The ₹2,000 transaction threshold is expected to remain unchanged. The possible postponement gives authorities more time to respond to merchant concerns while avoiding a festive-season fee change. The final rollout date and exemption rules have not yet been confirmed.

What is a merchant discount rate (MDR), and who pays it?

A merchant discount rate, or MDR, is a fee charged to a merchant for processing a digital payment. In the proposed UPI framework, the merchant would bear the charge on eligible person-to-merchant transactions. The customer would continue making the payment without a separate MDR charge.

For example, a qualifying merchant payment above ₹2,000 could attract a 0.40% MDR, subject to a ₹300 maximum. The acquiring bank collects this amount from the merchant. It then distributes parts of the fee through the payment network to other participating banks and providers.

MDR matters because it changes UPI’s existing zero-MDR arrangement for selected payments. The fee would create revenue for banks, payment service providers, and third-party application providers. However, merchants’ associations argue that even small charges can raise costs for businesses operating on thin margins.

Which UPI transactions would face the proposed charge, and how would the 0.40% fee and ₹300 cap work?

The proposed standard charge would apply to eligible person-to-merchant, or P2M, UPI transactions above ₹2,000. Payments at or below ₹2,000 would remain exempt under the framework. Person-to-person transfers and eligible small-merchant transactions would also remain outside the charge.

For a qualifying transaction, the MDR would be 0.40% of its value. A ₹10,000 payment would therefore produce a ₹40 fee. A much larger eligible payment would still face no more than the ₹300 cap. The merchant pays this fee, while the consumer does not.

Some categories would use a different structure. Bill payments, utilities, education, and fuel would attract a flat ₹5 fee per transaction above ₹2,000. The ₹2,000 threshold is expected to remain unchanged, although the rollout date and exemption rules are still being considered.

How much of UPI merchant activity would actually be affected, given the claim that about 96% of merchant transactions would remain exempt?

The Centre told the Supreme Court that around 96% of merchant transactions would remain unaffected by the proposed framework. On that basis, roughly 4% of merchant transactions would fall within the chargeable share. This estimate concerns merchant transactions, not every UPI transaction in the country.

The exempt majority would include payments up to ₹2,000, person-to-person transfers, and eligible small-merchant transactions. A qualifying merchant payment above ₹2,000 could still be charged, depending on its category and the final exemption rules. Payments in specified categories may use the separate ₹5 structure.

The 4% figure shows that the proposal is selective, but it could still matter to the merchants included. The framework’s final scope may change because officials are considering an exemption for businesses with annual turnover up to ₹40 Lakh. The threshold and rollout timing remain under review.

What could happen to retailers’ payment costs and profit margins if MDR is introduced, especially for businesses with thin margins?

Introducing MDR would add a payment-processing expense to eligible merchants. The cost would come directly from each qualifying transaction’s proceeds. For businesses with narrow margins, even a percentage-based charge can reduce the amount left after a sale.

Under the proposed structure, a merchant would pay 0.40% on an eligible P2M transaction above ₹2,000, subject to a ₹300 cap. AICPDF estimates that the fee could add ₹7,000 Cr–₹9,000 Cr in annual costs across the FMCG distribution and retail ecosystem. The estimate covers a broad industry group rather than every merchant.

Retail associations say these added costs could pressure businesses that already operate on thin margins. The actual effect would depend on which transactions qualify, the final exemptions, and the rollout date. Consumers would not pay MDR directly, while merchants would bear the proposed charge.

Why are retail associations opposing MDR, and how could their proposed alternatives—such as a fixed nominal fee—change the impact on merchants?

Retail associations are opposing MDR because they believe payment charges would increase operating costs. Their concern is strongest for businesses working with thin margins, where a new expense on eligible digital sales could reduce earnings. AIMRA and AICPDF led the visible pushback against the proposed framework.

AIMRA has requested a fixed, nominal charge for digital transactions instead of the proposed 0.40% MDR. A fixed fee would not rise as a percentage of the transaction value. Its effect would therefore depend on the amount eventually chosen and the transactions covered. The article does not specify that amount.

AICPDF has estimated ₹7,000 Cr–₹9,000 Cr in annual costs across FMCG distribution and retail if the fee applies. Both associations called for a ‘No UPI Day’ on October 2, then withdrew the protest after meeting Nirmala Sitharaman on September 30. Their opposition has contributed to the possible deferment.

How does a UPI payment move money and fees among the merchant’s bank, the customer’s bank, the payment provider, and the UPI app?

A UPI payment involves several participants. The acquiring bank is the merchant’s bank, while the issuing bank is the customer’s bank. The payer-side payment service provider bank and the UPI app provider also receive shares under the proposed revenue structure.

For an eligible transaction using the standard 0.40% MDR, the acquiring bank collects the fee from the merchant. It pays 0.28% of the transaction value to the issuing bank as interchange. The issuing bank then pays 0.12% to the payer-side payment service provider bank, which passes 0.08% to the UPI app provider.

This arrangement creates a revenue stream across the payment network while leaving the consumer’s payment unchanged. The merchant funds the MDR, and the participating banks and providers receive the stated shares. The framework would therefore replace zero MDR for selected transactions with a distributed fee model.

Key Facts:

📌 MDR rollout may move from October 15 to January 1, 2027.

📌 A broader exemption for businesses up to ₹40 Lakh turnover is under consideration.

📌 The possible delay follows opposition from retail traders’ associations.

📌 MDR is a fee merchants pay for processing digital payments.

📌 Consumers will not have to pay MDR.

📌 The proposed framework would shift selected payments away from zero MDR.

📌 Eligible P2M UPI transactions above ₹2,000 would face MDR.