The NPCI is planning a potential Merchant Discount Rate (MDR) structure that targets only large entities with over ₹1,000 crore in annual business. This move seeks to fund digital infrastructure costs while keeping payments free for small merchants and retail users. The shift could impact the revenue models of banks and payment companies, which have long absorbed infrastructure costs.
The National Payments Corporation of India (NPCI) has signaled a shift in its strategy regarding the Unified Payments Interface (UPI). CEO Dilip Asbe confirmed that the organization is exploring a Merchant Discount Rate (MDR) framework, but with a clear mandate to protect retail consumers and small shopkeepers from any additional costs.
Since its launch, UPI has operated on a zero-MDR model, which was essential for rapid adoption across the country. However, this model has also meant that banks and payment service providers have been absorbing the full cost of maintaining the infrastructure. The proposed policy change aims to balance this by introducing fees specifically for large-scale enterprises.
Targeting High-Volume Merchants
The proposed framework is not a blanket charge for every user. Data analysis suggests that approximately 80% of potential fee revenue comes from large corporations with an annual Gross Merchandise Value (GMV) exceeding ₹1,000 crore. These large players are already accustomed to paying processing fees for credit card transactions. By focusing on this segment, the NPCI aims to shield the vast majority of small, local merchants, 75% of whom currently process transactions under ₹2,000, from any disruption or added expenses.
Impact on Banks and Payment Companies
For investors, this development is a long-awaited signal regarding the monetization of India's digital payment rails. Banks and payment aggregators have long advocated for a framework that allows them to recover the costs of building and securing the payment network. If the NPCI implements a structured MDR for large merchants, it could eventually lead to improved fee-based income for the banking sector and payment firms. However, the exact structure of these charges and how the market reacts will be the key monitorables.
Risks and Future Outlook
The transition to a paid model, even for large merchants, carries inherent risks. There is a possibility that large retailers might resist the fees or change their payment acceptance policies, which could create some friction in the system. The success of this move will depend on whether these large entities perceive enough value in the UPI ecosystem to absorb the new costs without passing them down to consumers, as the NPCI is keen to avoid.
Beyond the pricing debate, the NPCI is moving forward with the introduction of agentic payments—an AI-driven system that allows for autonomous payment execution. This is expected to open new use cases for the UPI platform in the coming months. Investors will watch how the company balances the need for long-term capital spending on such technology with the goal of keeping the core platform accessible and competitive.