NPCI Defers 0.4% UPI MDR Rollout Until After Diwali: What It Means for Small Merchants and Festive Purchases
The NPCI has deferred implementing the Merchant Discount Rate (MDR) for a limited number of Unified Payments Interface (UPI) transactions of merchants until after Diwali 2026. While initially these charges were supposed to be implemented from October 15, the new implementation date shall be communicated separately.
This move by NPCI, which was announced on October 13, offers some reprieve to merchants and payment services firms during the festive season, during which time transactions usually go up. According to NPCI, the decision was made by the UPI and Services Steering Committee.
What Is the Proposed 0.4% UPI MDR Charge?
The Merchant Discount Rate is the cost levied by merchants upon the participants in the payment system for processing digital transactions eligible for it. In the new scheme, a rate of 0.4% MDR will be charged on eligible P2M UPI transactions beyond ₹2,000, according to available exceptions and caps.
In this regard, an eligible transaction amounting to ₹5,000 will levy an MDR cost of ₹20. The cap proposed to be charged on transactions over ₹75,000 will amount to ₹300 per transaction.
The new framework shall not cover person-to-person transactions such as sending funds to friends and family. Payments made by merchants up to ₹2,000 and those within the scope of the zero-MDR framework shall also be exempt.
What Does the Delay Mean for Small Merchants?
Local retail stores, grocers, street shops and service providers use UPI extensively for easy and convenient transactions. Any extra charges imposed on transactions during the festive season could become problematic for the retailers who already face increased cost of inventory, labor and operation.
This deferment allows both merchants and payment facilitators to get more time to get ready for the new policy. Nonetheless, its actual effect will depend upon the dates of implementation, categories included and exemptions provided within the system.
Merchants in the category of those entitled for the zero MDR policy should be safe. Merchants should ascertain which category they fall into and not think that every transaction above the amount of ₹2,000 will attract this fee.
Will Customers Pay More for Festive Purchases?
From the consumer perspective, this indicates clearly that the MDR proposed is going to be a merchant fee and not a new levy that is being imposed upon the customers that use the UPI services for their transactions.
This delay further allows the shoppers to use UPI for their transactions during the festive season without the introduction of the proposed MDR coming into effect on October 15. Whether the merchants see an indirect effect on pricing or transactions from this new framework would depend on its workings post implementation.
Why Has NPCI Deferred the Rollout?
This decision has been made in light of the fears expressed by industry experts regarding the imposition of processing charges right before an important period for shopping. Companies from retail, fintech, and payment industries have analyzed the effects on transaction costs and profitability of digital payments.
The change in the schedule is not evidence of the fact that the MDR system that has been suggested has been cancelled. The exact date of the launch of the new framework will be announced separately by NPCI.
Currently, merchants can prepare for the launch while consumers can continue using UPI under the current framework. The factors that are worth noting are the launch date, the exemptions from charges for merchants, and operational regulations.
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