politics · 2026-09-20
UPI's Free Ride Ends for Big Merchants
UPI stayed free for a decade because govt subsidies covered the ₹20,000 crore running cost, and this fee shifts that bill from taxpayers onto merchants making bigger sales.
Which UPI payments actually get charged now?
Only Person-to-Merchant UPI payments above ₹2,000 attract the 0.4% MDR from Oct 15, capped at ₹300 for transactions of ₹75,000 or more. Payments up to ₹2,000, which are over 95% of P2M volume, stay free, as do all person-to-person transfers and small vendors earning up to ₹1 lakh/month via QR codes.
Why did railways and fuel get a flat ₹5 fee instead?
Railways, telecom, insurance and fuel get a flat ₹5 MDR on transactions above ₹2,000 instead of the standard 0.4%, and capital-market transactions like mutual funds get an even lower 0.02% capped at ₹300, because these are high-volume, low-margin categories where a full percentage fee would be disproportionate.
What happens to a ₹1 lakh UPI payment's fee?
A straight 0.4% on ₹1 lakh would be ₹400, but NPCI caps MDR at ₹300 for any transaction of ₹75,000 or above, so the fee stops rising once ticket size crosses that point. Select sectors including railways, telecom, insurance and fuel will attract a flat MDR of ₹5 for transactions above ₹2,000 instead of the standard 0.4% rate.
Why is the ₹2,000 cutoff set where it is?
NPCI set the exemption at ₹2,000 because that threshold already covers over 95% of P2M UPI transaction volume, so the vast majority of everyday purchases like tea stalls or auto rides remain untouched even though bigger-ticket merchant payments now carry a cost.
Could this push shopkeepers back to cash?
A former GoI secretary's op-ed notes vendors are already removing QR codes fearing tax scrutiny, and petrol pumps are reportedly going cash-only, since the MDR cost falls on merchants who cannot legally pass it to customers. GST of 18% on the MDR pushes the real merchant cost to about 47.2 basis points instead of 40.
Could refiners of margin, like petrol pumps, opt out entirely?
The op-ed notes petrol pumps are reportedly already insisting on cash-only payments to dodge the new MDR, since fuel retailing runs on thin margins where even a flat ₹5 fee per transaction adds up across high daily volumes.
Does GST turn 40 bps into a bigger real cost?
Yes. Merchants owe 18% GST on the MDR itself, not on the transaction, so a 0.4% fee effectively becomes about 47.2 basis points unless they claim input tax credit as GST-registered businesses, according to people aware of the arithmetic cited by ET.
How was the 33% market-share cap meant to work?
NPCI's rule capping any single UPI app at 33% of transaction volume was meant to prevent one player from dominating the network. Since gaining market share now carries real MDR revenue attached to it, smaller apps have a fresh financial reason to compete for volume, which could make that cap easier to enforce.
Who pockets the new ₹16,000 crore MDR pool?
Bernstein estimates banks could earn ~₹14,000 crore of the new revenue pool, payment apps ~₹7,000 crore and the network ~₹1,000 crore. A separate industry estimate splits a ~₹16,000 crore pool evenly: PhonePe could see ₹2,000-2,400 crore a year, Paytm ₹1,200-1,500 crore and Google Pay ₹1,000-1,200 crore.
Do small vendors face any hidden squeeze from this?
Small merchants earning up to ₹1 lakh/month through UPI QR codes remain fully exempt from MDR under the P2PM category, and NPCI has proposed a dedicated fund to support digital payment infrastructure in Tier 3-6 centres including the Northeast, Jammu & Kashmir and Ladakh.
Will banks now spend more on stopping UPI fraud?
Banks are set to receive roughly ₹8,000 crore of the new revenue pool for maintaining UPI rails, and one industry voice argues this money should be proactively invested in curbing UPI fraud, which he calls a serious problem despite already-low technical failure rates at larger banks.
Could this slow India's shift away from cash?
A former GoI secretary warns that charging merchants could push India's most price-sensitive users back toward cash, undoing the effect of RBI's currency printing costs already falling 23.5% in one year, from ₹6,372.8 crore in FY25 to ₹4,875.2 crore in FY26, due to digital payment growth.
Source: economictimes.indiatimes.com