UPI Fee Structure and Merchant Discount Rate Framework — UPPSC current affairs 16 September 2026

Government and NPCI clarified the regulatory framework governing Merchant Discount Rate (MDR) on UPI transactions.

Merchant Discount Rate (MDR)

Fee charged to merchants for accepting digital payments, distributed among payment infrastructure providers.

P2M Transaction

Person-to-Merchant transfer conducted via digital payment channels for commercial purchase of goods or services.

Unified Payments Interface (UPI) was developed by National Payments Corporation of India (NPCI) under the Payment and Settlement Systems Act, 2007.
MDR is a fee split among acquiring banks, issuing banks, and payment service providers (PSPs) to cover infrastructure and transaction processing costs.

All Person-to-Person (P2P) transfers remain completely free of transaction charges, accounting for 70 percent of total UPI transaction value.
Person-to-Merchant (P2M) payments up to Rs 2,000 and payments received by small merchants (receiving up to Rs 1 lakh monthly) are exempt from MDR under zero-MDR rules.
MDR applies selectively to non-exempt merchant transactions exceeding Rs 2,000, leaving approximately 96 percent of merchant transactions unaffected.

Ensures financial inclusion for retail micro-merchants while providing revenue sustainability for digital payment service providers.
Exposes Prelims clarity on MDR identity: MDR is an ecosystem fee shared among financial intermediaries, not a government tax.

P2P transactions on UPI carry zero charges under current regulatory guidelines.
MDR is not a government tax but a service fee distributed between payment apps and banking intermediaries.

Balancing financial inclusion via zero-MDR against long-term commercial viability of payment system providers.

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