RBI: MDR on large UPI transactions key to digital payments sustainability
Synopsis
The RBI has formally backed the introduction of MDR on large UPI transactions — a structural shift away from the zero-MDR model that powered India's payments boom but strained ecosystem finances. At 0.4% on P2M transactions above ₹2,000 and capped at ₹300 for amounts of ₹75,000-plus, the framework is designed to fund future infrastructure without burdening ordinary users.
Key Takeaways
The RBI on 15 September 2026 backed MDR on large-value UPI transactions to strengthen the digital payments ecosystem's long-term sustainability.
A 0.4% MDR will apply to P2M transactions above ₹2,000 ; all P2P transactions remain completely free .
For transactions of ₹75,000 and above , MDR is capped at ₹300 per transaction.
Essential sectors — railways, telecom, insurance, fuel, agricultural inputs — pay a flat ₹5 MDR per transaction above ₹2,000.
The Finance Ministry clarified MDR is not a tax; it is shared among banks, payment service providers, and UPI app providers.
P2M transactions below ₹2,000 remain free for merchants under the new framework.
The Reserve Bank of India (RBI) on Tuesday, 15 September 2026, stated that introducing a Merchant Discount Rate (MDR) on large-value UPI transactions is a critical step toward securing the long-term sustainability of India's digital payments ecosystem. The central bank added that the move will help UPI continue to scale, innovate, and serve consumers and businesses nationwide.
What the RBI Said
In an official post on X, the RBI said: 'A fair and appropriate distribution of MDR across ecosystem participants will support continued investment in technology, infrastructure and acceptance networks. This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes.'
The bank reaffirmed its commitment to ensuring UPI remains 'safe, seamless, affordable, and accessible' while supporting the sustained growth of India's world-class digital payments infrastructure.
Key MDR Structure and Rates
A nominal MDR of 0.4% will apply exclusively to person-to-merchant (P2M) transactions above ₹2,000. This charge will be distributed among payment ecosystem participants — including banks, payment service providers, and UPI application providers — to fund ongoing operations and expansion.
For high-value transactions of ₹75,000 and above, the MDR has been capped at ₹300 per transaction, providing a ceiling for businesses processing large payments. Meanwhile, all person-to-person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred.
Essential Sectors Get a Flat Flat Rate
P2M transactions above ₹2,000 in essential and thin-margin sectors — including railways, telecommunications, insurance, fuel, and agricultural inputs — will attract a flat MDR of just ₹5 per transaction. The Finance Ministry noted this flat charge is designed to provide cost certainty for critical public services and businesses operating on narrow margins.
Government and NPCI Clarification
The Finance Ministry, in a separate explainer issued on Tuesday, clarified that MDR is neither a tax nor a charge collected by the government or the National Payments Corporation of India (NPCI). It is instead distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI network.
Importantly, P2M UPI transactions below ₹2,000 will continue to remain free for merchants as well. The new framework is, therefore, narrowly targeted at larger commercial transactions, leaving small merchants and everyday users unaffected.
Context and Significance
This move comes amid growing concern within the payments industry about the long-term financial viability of UPI's zero-MDR model, which — while driving mass adoption — has placed sustained cost pressure on banks and payment service providers. India's UPI platform now processes billions of transactions monthly, making it among the largest real-time payment networks globally. Notably, the absence of MDR since 2020 was supported by government subsidies, and industry stakeholders had repeatedly flagged that a subsidy-only model was not indefinitely scalable. The new tiered structure attempts to balance user affordability with ecosystem sustainability, ensuring continued investment in infrastructure and security without passing costs onto small-value users or essential service providers.
Point of View
But it also reveals how politically sensitive any cost imposition on payments remains. The long-term risk is that a patchwork of exceptions and caps creates regulatory complexity without fully solving the sustainability problem it sets out to address.
NationPress
16 Sept 2026
Frequently Asked Questions
What is MDR on UPI transactions and why is it being introduced?
MDR, or Merchant Discount Rate, is a fee distributed among payment ecosystem participants — banks, payment service providers, and UPI app providers — to fund the operation and expansion of payment infrastructure. The RBI introduced it on large-value UPI transactions to ensure the long-term financial sustainability of India's digital payments ecosystem, which has faced cost pressures under the earlier zero-MDR model.
Will UPI become costly for regular users?
No. All person-to-person (P2P) UPI transactions remain completely free regardless of the amount. P2M transactions below ₹2,000 also stay free for merchants. The 0.4% MDR applies only to P2M transactions above ₹2,000, and even then it is a merchant-side charge, not a user fee.
What is the MDR rate and how is it structured?
A nominal MDR of 0.4% applies to P2M UPI transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction. Essential and thin-margin sectors — including railways, telecom, insurance, fuel, and agricultural inputs — pay a flat rate of just ₹5 per transaction above ₹2,000.
Who collects the MDR — the government or NPCI?
Neither. The Finance Ministry has clarified that MDR is not a tax or government charge. It is distributed among ecosystem participants including banks and payment application providers to support UPI's ongoing operations and infrastructure expansion.
Why does the UPI ecosystem need MDR now?
UPI processes billions of transactions monthly, and the zero-MDR model — supported by government subsidies since 2020 — has placed sustained financial pressure on banks and payment providers. The RBI says a fair MDR distribution will support continued investment in technology, infrastructure, and acceptance networks, enabling further growth without dependence on indefinite subsidies.
