The proposed 0.4% merchant discount rate (MDR) on UPI transactions above Rs 2,000 could be delayed until January 2027, according to a report citing sources familiar with the matter. The National Payments Corporation of India (NPCI) is considering postponing the rollout after merchant bodies, fintech companies and payments firms sought more time to prepare for the new charges. The MDR was scheduled to take effect from October 15, but concerns over transaction categories, varying fee structures and system readiness have complicated preparations ahead of the festive season.

According to the report, NPCI has received requests to defer the implementation until the festive sales period is over. The payments body is discussing the issue with the finance ministry and is expected to take a decision within the next two days. Industry participants have raised concerns that introducing the additional transaction cost during the festive season could increase the cost of doing business when merchants are already preparing for higher sales. There are also concerns that some of these costs could eventually be passed on to consumers through higher prices or other charges.

The proposed MDR was fixed by the UPI Steering Committee last month for transactions above Rs 2,000. At a rate of 0.4%, the charge would amount to Rs 8 on a Rs 2,000 transaction and Rs 40 on a Rs 10,000 payment. MDR is the fee paid by merchants to banks and other participants for processing digital transactions. The proposed change has drawn attention because UPI currently has different pricing structures across transaction categories, unlike the comparatively standardised rates associated with some card payments.

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One major area of uncertainty is determining which transactions would attract the 0.4% rate and which would continue to be governed by separate rates or flat fees. Utility payments, loan repayments and capital market transactions can have different MDR structures, leading payment companies and merchants to seek greater clarity. Capital market participants have also raised concerns about payments made by customers to add money to their broking accounts, arguing that such transactions resemble person-to-person payments and should not attract MDR when brokers do not earn revenue from them.

Loan repayments have emerged as another area requiring clarification. The report said NPCI's directive provides for a Rs 5 flat fee for loan payments made through auto-debit mandates, while manual repayments following failed auto-debits could otherwise fall under the 0.4% MDR applicable to certain financial institution payments. NPCI has reportedly clarified that such repayments should also attract the Rs 5 flat fee, but payment companies and banks still face questions about how these transactions should be identified and processed under the new framework.

If the postponement is approved, merchants, banks and payment companies would get additional time to understand the MDR structure and make necessary changes to their systems. For consumers, the immediate effect would be that the proposed 0.4% charge may not begin on October 15 as originally scheduled. However, the report does not establish that the delay has been finalised, and it remains unclear whether merchants would absorb the additional cost or pass part of it on to customers. NPCI has not yet confirmed the reported postponement, with a decision expected shortly.

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