With reference to the Merchant Discount Rate (MDR) on UPI payments, consider the following statements: 1. The 0.4% MDR applies to all UPI transactions regardless of the amount. 2. The MDR is capped at ₹300 for transactions of ₹75,000 and above. 3. The new framework was notified by the Ministry of Finance. Which of the statements given above is/are correct?

80% of Mumbaikars refuse 0.4% MDR on UPI payments above ₹2,000

GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims + Mains· 1 October 2026

Digital payment infrastructure and transaction costs: a relevant GS3 Economy and Financial Inclusion topic.

Why in news

The Ministry of Finance notified a framework (S.O. 5067(E)) to introduce a 0.4% Merchant Discount Rate (MDR) on UPI payments above ₹2,000, sparking resistance from retail associations and consumer pushback.

Background

The 0.4% MDR applies to person-to-merchant (P2M) UPI payments above ₹2,000, effective October 15, 2026. The MDR is capped at ₹300 per transaction for payments of ₹75,000 and above.

Facts for Prelims

FactMDR of 0.4% applies to P2M UPI payments above ₹2,000
FactMDR is capped at ₹300 for transactions of ₹75,000 and above
FactMaharashtra accounts for 9.84% of UPI transactions by volume as of April 2026
BodyNPCI (National Payments Corporation of India) provides statewise UPI transaction data
FactLocalCircles study found 80% of Mumbaikars refuse to pay the MDR if passed on by merchants

Prelims practice question

With reference to the Merchant Discount Rate (MDR) on UPI payments, consider the following statements:

The 0.4% MDR applies to all UPI transactions regardless of the amount.
The MDR is capped at ₹300 for transactions of ₹75,000 and above.
The new framework was notified by the Ministry of Finance.

Which of the statements given above is/are correct?

(a)1 only
(b)1 and 2 only
(c)2 and 3 only
(d)1, 2 and 3

Show answer

Answer: (c) 2 and 3 only — Statements 2 and 3 are correct. Statement 1 is incorrect: The MDR only applies to payments above ₹2,000.

For Mains

Q. Discuss the economic implications of introducing a Merchant Discount Rate (MDR) on UPI payments and its potential impact on the digital payment ecosystem in India.

Dimensions to cover in your answer

Consumer behavior shift: Risk of migration from UPI to cash or cards due to transaction costs
Merchant viability: Impact on small retailers' margins and potential for cost-pass-through to consumers
Digital infrastructure sustainability: Balancing zero-cost ecosystem benefits with the need for sustainable payment processing costs

Keywords: Merchant Discount Rate · UPI · Digital Payments · Financial Inclusion · Transaction Costs · Monetary Policy

Read the full news →Report a mistake in this note Source: The Hindu ↗Also: GS3 · IT, AI, semiconductors & computing

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