UPI MDR Rollout Likely to be Pushed to January 2027 Amid Retailer Backlash

According to a media report, there is pushback from retail traders' associations, which could delay the adoption of a merchant discount rate (MDR) on certain UPI transactions from October 15 until January 1, 2027. A decision is anticipated to be made in the coming days regarding a proposal to delay the rollout.

Deferring the payment would ensure that qualifying merchant payments would not be subject to MDR during the holiday season. The anticipated implementation and certain parts of the framework were discussed at a meeting of the UPI and Services Steering Committee, which is headed by the National Payments Corporation of India (NPCI).

Objection Raised by Traders’ Association on MDR Charges

Businesses with thin profit margins may see a rise in payment expenses as a result of the proposed MDR, which is why retail merchants' associations are against it. In opposition to the proposed MDR, the All India Consumer Products Distributors Federation (AICPDF) and the All India Mobile Retailers Association (AIMRA) have planned a "No UPI Day" on October 2. Following their discussion with Finance Minister Nirmala Sitharaman on September 30, the groups decided to scrap the planned demonstration.

In place of the proposed 0.40% MDR, AIMRA has advocated for a flat minimal fee for all digital transactions. The annual costs throughout the FMCG distribution and retail ecosystem could increase by INR 7,000 crore to INR 9,000 crore, according to AICPDF's estimates. A possible exemption for companies with a yearly turnover of up to INR 40 lakh from MDR is also being considered by the committee.

The previous framework had intended to exclude small merchants receiving up to INR 1 lakh per month through UPI QR codes straight into their bank accounts from the cost; this will expand that exemption. Eligible person-to-merchant (P2M) UPI transactions above INR 2,000 would be subject to a 0.40% MDR under the proposed framework, with a maximum fee cap of INR 300 per transaction.

Major Merchants Remain Unaffected with Proposed MDR Charges: Centre

The government has assured the Supreme Court that the new framework would only apply to around 4% of all transactions, meaning that 96% of all merchant transactions would be unaffected. The suggested arrangement calls for the acquiring bank to collect MDR from the merchant and then pay the issuing bank 0.28% of the transaction value as an interchange.

The payer-side payment service provider bank would receive 0.12% from the issuing bank, and 0.08% would be passed on to the UPI app provider. Many financial institutions, including banks, payment processors, and TPAPs, stand to gain financially from the planned MDR. The move coincides with the ongoing expansion of UPI transactions in the Indian market. In September, UPI processed 24.07 billion transactions, valued at INR 29.37 trillion, an increase of 22.6% year-on-year for transaction volume and 18% year-on-year for transaction value.