Starting October 15, 2026, a 0.4% merchant fee will apply to UPI transactions exceeding Rs 2,000. This policy aims to help banks and payment providers recover cybersecurity and infrastructure costs. Importantly, standard consumers and small-scale businesses remain exempt from these charges.
India’s digital payment ecosystem is set for a significant update. Starting October 15, 2026, the National Payments Corporation of India (NPCI) will implement a new Merchant Discount Rate (MDR) structure, introducing a 0.4% fee on merchant UPI transactions that exceed Rs 2,000. This change is designed to create a more sustainable financial model for the digital payments network.
Rajnish Kumar, former Chairman of the State Bank of India and current Chairman of Mastercard India, has defended the introduction of these fees. He noted that the costs associated with maintaining a secure digital network, including fraud prevention and strict regulatory compliance, have become too large for banks and payment processors to absorb alone. Industry data indicates that these participants have been facing significant annual losses, which has hampered the ability to invest in necessary technology and network expansion.
How the New Fee Structure Works
For investors and market observers, it is important to distinguish between the different types of transactions. The 0.4% fee is a ceiling, meaning actual market rates could be lower as payment providers compete for merchant business. Merchants are also prohibited from passing these costs on to their customers. This ensures that the user experience for the average person remains free of transaction charges.
Different sectors will face varying fee structures. Fuel, insurance, and utility payments will be subject to a flat fee of Rs 5 for transactions over Rs 2,000. In contrast, investment-related payments will carry a lower MDR of 0.02%. These tiered fees are intended to balance the cost of processing with the specific margins and requirements of different industries.
Impact on Business and Risks
For financial institutions and payment aggregators, this fee structure provides a clearer path to revenue recovery. By offsetting the estimated Rs 20,000 crore in annual operational costs, providers may see improved financial stability in their digital payment divisions. However, there are potential risks. Small merchants who are sensitive to any additional processing costs may resist the new system. Additionally, payment aggregators will need to manage the operational complexity of implementing these changes without causing friction at checkout points.
To prevent economic strain on smaller businesses, the regulator has confirmed that merchants processing less than Rs 1 lakh per month via QR codes will remain entirely exempt. Personal, peer-to-peer transfers, and any retail transaction below the Rs 2,000 threshold will also continue to be processed without fees. Moving forward, investors should track how quickly merchants adopt the new system and whether payment providers can maintain competitive pricing while improving their margin profiles.