Indian Bank is considering absorbing the 0.28% acquiring fee for UPI transactions exceeding ₹2,000 starting October 15, 2026. This move seeks to support merchants while maintaining compliance, as internal data indicates only 5% of the bank's UPI volume will be affected by the new MDR structure.
Indian Bank is preparing to address the upcoming implementation of the Merchant Discount Rate (MDR) for UPI transactions. Starting October 15, 2026, a 0.4% MDR is scheduled to take effect for Person-to-Merchant (P2M) transactions exceeding ₹2,000. In response, the public sector lender is currently evaluating a plan to waive its 0.28% share of this fee, effectively absorbing the cost to alleviate financial pressure on merchants who handle higher-value digital payments.
This approach mirrors the bank’s existing strategy for credit and debit card transactions, where it has historically offered full or partial fee waivers to support merchant activity. The bank’s management has indicated that maintaining flexible pricing remains a key part of its strategy to support its merchant network. As of September 30, 2026, the lender manages a substantial base of 21.2 lakh P2M accounts and 8.2 lakh P2PM accounts, making the retention of these relationships a core priority.
From a financial perspective, the impact of this new fee structure appears limited. Data from the first half of FY27 shows that the bank processed 32.6 crore total UPI transactions. Of this total, approximately 1.6 crore transactions—roughly 5%—crossed the ₹2,000 threshold that would trigger the new MDR. Because a significant portion of its UPI traffic consists of smaller payments, the cost of the waiver is expected to be manageable. Furthermore, small businesses operating under the P2PM framework, which receive up to ₹1 lakh in monthly payments, continue to remain exempt from these costs entirely.
To ensure transparency and compliance, the bank is developing a proprietary Application Programming Interface (API) to monitor transaction data. This system is designed to track payments in real time and identify any anomalies, such as merchants attempting to pass these costs on to consumers as a surcharge. The bank has implemented a strict policy prohibiting such practices, and the new monitoring tool is expected to be fully operational within ten days.
Investors and market observers will likely focus on the successful deployment of this monitoring system and whether other banks follow a similar path regarding fee waivers. The bank’s ability to balance cost absorption with merchant acquisition will be the key metric to monitor in the coming quarters as the UPI ecosystem adjusts to the new fee implementation.