NPCI Postpones UPI Merchant Discount Rate Implementation Until After Diwali

The National Payments Corporation of India (NPCI) has announced a postponement of the Merchant Discount Rate (MDR) on certain Unified Payments Interface (UPI) transactions. This delay comes just two days before the originally planned October 15 rollout and aims to provide relief to merchants during the busy festive season of Diwali.

In an official statement, NPCI said the UPI and Services Steering Committee decided to defer the MDR implementation on select Person-to-Merchant (P2M) transactions until immediately after Diwali. They added that the exact date for the levy will be communicated later.

The MDR structure itself remains unchanged. Sources confirmed the fee schedule will proceed as planned once implemented. MDR is a transaction fee that merchants pay to the banks and payment processors handling digital payments.

Under the proposed plan, MDR will apply only to UPI transactions exceeding ₹2,000. The fee rate is set at 0.40 percent of the transaction amount, capped at ₹300. Certain categories, including bill payments, fuel purchases, and education-related transactions, will be subject to a flat fee of ₹5 per transaction.

Before this deferment, there were talks about pushing the MDR implementation date to January 1, 2024. However, NPCI’s latest update indicates the levy will be introduced shortly after the Diwali festival, which falls on November 12 this year.

Merchant groups had expressed strong opposition to the MDR proposal. Retail traders’ associations had even planned a "No UPI Day" protest on October 2, but called off the strike after discussions with Union Finance Minister Nirmala Sitharaman last month.

The introduction of MDR on UPI transactions is part of broader efforts to make digital payment systems sustainable by sharing operational costs between banks and merchants. As digital payments grow rapidly across India, balancing affordability for merchants and the financial viability of payment networks remains a key challenge.

UPI has seen tremendous growth in recent years. In September 2023, UPI recorded an all-time high average of 802 million transactions daily, with an average daily transaction value of ₹97,913 crore. The total number of UPI transactions that month reached 24.07 billion, a 22.6 percent increase compared to 19.63 billion in September 2022.

The total value of transactions also rose by 18 percent year-on-year, hitting ₹29.37 trillion in September, up from ₹24.89 trillion the previous year. Month-over-month comparisons showed a slight dip in both volume and value, with transaction numbers falling 1.8 percent from 24.51 billion in August and value declining 1.5 percent from ₹29.82 trillion. This was partly due to September having one day less than August.

The move to delay the MDR rollout reflects the sensitivity of the payment ecosystem’s stakeholders during a crucial period for retail businesses. Diwali is one of the biggest festivals in India, often driving significant sales and consumer spending. Deferring the fee allows merchants to operate without additional transaction costs during this peak season.

NPCI’s decision highlights the ongoing dialogue between regulators, payment companies, and merchants as India’s digital payment infrastructure continues to evolve. The timing and structure of fees like MDR will play a significant role in shaping the future adoption and sustainability of digital payments in the country.