NPCI pushes back UPI MDR rollout to ‘immediately after Diwali’

NPCI postponed the planned implementation of Merchant Discount Rate, or MDR, on selected person-to-merchant UPI payments. The delay moved the rollout away from October 15, during the festive season, when merchants typically handle higher transaction volumes.

The new start is expected immediately after Diwali, but NPCI has not announced a specific date. Its UPI and Services Steering Committee said the date would be notified separately. The postponement followed strong appeals from traders and a decision made in the Prime Minister’s Office, according to government sources.

The delay is temporary, not a cancellation. CAIT welcomed it as protection for traders and digital-payment momentum. The Supreme Court has also directed NPCI, the Union government, and the RBI to explain the rationale for MDR in affidavits due by late October, adding scrutiny before the policy proceeds.

Merchant Discount Rate is a percentage fee deducted from a merchant’s digital-payment proceeds. In ordinary digital payments, the merchant usually bears this cost through the acquiring bank, payment provider, or payment network. The customer generally pays the displayed purchase price, while the merchant receives slightly less.

For example, if a qualifying payment carried a 0.4% MDR, a merchant would not keep the entire transaction value. The fee would be collected through the payment chain before the proceeds reached the merchant’s account. The exact distribution among payment participants can vary, but the merchant-facing charge is the central concern here.

The article focuses on whether this cost is affordable for traders. CAIT said small businesses often operate on thin margins, while LPG distributors receive fixed commissions and cannot freely change cylinder prices. A new fee could therefore reduce earnings or discourage digital-payment acceptance.

The proposed Merchant Discount Rate was 0.4% for specified UPI transactions exceeding ₹2,000. The policy therefore did not cover every UPI payment described in the article. It focused on person-to-merchant payments made at medium and large merchant establishments.

For example, a customer’s UPI payment above ₹2,000 at a qualifying medium or large business could attract the proposed rate. Transactions connected with the capital market and those in strategic sectors would not necessarily use the same rate. The article says these categories would face different MDR rates.

The threshold mattered because it could influence payment behaviour. LPG distributors warned that customers might make staggered payments to remain below ₹2,000, creating logistical inconvenience. The policy was postponed before implementation, so the article does not establish that these rates actually began operating.

Traders said an additional transaction fee could reduce earnings during the festive and wedding season, when businesses depend on higher sales volumes. CAIT argued that many merchants, especially small businesses and MSMEs, operate on thin margins. Even a 0.4% charge could therefore make digital payments less attractive or affordable.

LPG distributors faced a different constraint. They said they receive fixed commissions and have no autonomy to regulate cylinder prices. If MDR reduced their earnings, they could not simply add the cost to the selling price. They therefore sought complete exemption from MDR and other payment infrastructure-related levies.

The distributors also warned about customer behaviour. Consumers might use cash or make several staggered payments to avoid the ₹2,000 threshold. That could create logistical inconvenience, weaken digital-payment acceptance, and push some transactions back into a cash-based economy.

NPCI is the main payments body named in the decision. Its UPI and Services Steering Committee announced that MDR on selected person-to-merchant UPI transactions would begin after Diwali. NPCI would therefore play a central role in applying and administering the policy.

The Union government and the Prime Minister’s Office are also involved. Government sources said the postponement decision was made in the PMO after strong appeals from traders. The Finance Ministry heard CAIT’s concerns, while the Petroleum and Natural Gas Ministry received an exemption request from LPG distributors.

The Reserve Bank of India and the Supreme Court are involved in review. The Supreme Court directed NPCI, the Union government, and RBI to file affidavits explaining the rationale for MDR on specified UPI transactions. CAIT and other merchant groups are stakeholders pressing for affordable digital payments.

If UPI became more expensive, customers could pay in cash, while merchants could accept or request staggered payments. The article specifically mentions these possibilities in the context of avoiding a charge on transactions exceeding ₹2,000. It does not identify cards or other specific payment methods as alternatives.

A customer making a large payment might divide it into several smaller transactions. An LPG distributor, for instance, could receive separate instalments rather than one payment above the threshold. Cash would avoid the proposed UPI charge, while split payments could keep each transaction below the stated limit.

These alternatives would not be frictionless. LPG distributors called staggered payments a logistical inconvenience. CAIT also warned that extra costs could discourage wider digital-payment acceptance. A shift toward cash could make collections and record-keeping less convenient, while repeated smaller payments could slow transactions and complicate reconciliation.

In a typical UPI payment, the customer authorises a transfer from the customer’s bank account to the merchant’s bank account. The UPI infrastructure routes the payment instruction between the participating banks, confirms the transaction, and supports settlement and records. The customer sees a debit, while the merchant receives a corresponding credit.

For example, when a customer scans a merchant’s QR code, the payment request identifies the merchant and amount. The customer’s bank approves the transfer, and the payment system communicates with the merchant’s bank. Banks and payment participants must maintain systems that process, secure, reconcile, and settle these transactions.

Those activities have operating costs even when customers experience UPI as quick and simple. MDR is a way to charge for part of that payment infrastructure. However, this article focuses on the proposed rate, merchant affordability, and the dispute over who should bear the cost; it does not detail the technical settlement process.