MDR Won’t Be Implemented Before Diwali; No New Date Fixed Yet

MDR Rollout Postponed:The Centre on Tuesday announced deferring the implementation of a 0.4 per cent Merchant Discount Rate (MDR) on select Unified Payments Interface (UPI) transactions above Rs 2,000, providing relief to merchants ahead of the festive season. The revised implementation date will be announced after Diwali, according to the National Payments Corporation of India (NPCI).

In a statement issued on Tuesday, the NPCI said, “UPI and Services Steering Committee today decided that, keeping in mind the festive season, Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions shall be implemented immediately post Diwali on a date to be notified separately.”

How Long Has it Been Delayed for?

Last month, the government had announced that an MDR of 0.4 per cent would apply to select person-to-merchant UPI transactions above Rs 2,000 from October 15. The charges are to be borne by merchants rather than consumers. The fee was capped at Rs 300 for transactions of Rs 75,000 or more.

The proposed change had already raised the possibility of a delay in the rollout. Several media reports earlier stated that the government was reconsidering the October 15 date by few more months; potentially till January 2027.

Since this period sees a sharp rise in consumer spending as people make purchases for festivals, weddings and other celebrations, digital payments account for a large share of these transactions.

Though the original deadline was significant as it coincided with the festive shopping season, but postponement has given banks, payment service providers and other companies involved in digital transactions more time to warm up to the change. Introducing a new fee straucture at this time could have affected merchants and payment companies.

On that note, the proposed changes were all set to change the dynamics of the UPI transactions for payment companies. Since they were expected to receive a share of the proceeds collected through the fee, it could have created an additional revenue stream for businesses involved in processing digital transactions.

What is MDR?

The Merchant Discount Rate (MDR) is a fee that has to be paid by merchants for accpeting payments through UPI. It is generally calculated as a percentage of the transaction value and deducted before the remaining amount is credited to the merchant.

For example, if a customer pays Rs 10,000 through a digital payment system and the applicable MDR is 0.4 per cent, the fee would amount to Rs 40. The merchant would receive Rs 9,960, before accounting for any other applicable charges.

The fee determines how the cost of processing digital payments is distributed among merchants, banks and payment service providers. Under the proposed arrangement, the MDR would apply to select person-to-merchant UPI transactions, rather than all UPI payments.

What is NPCI?

The National Payments Corporation of India (NPCI) is the umbrella organisation responsible for operating key retail payment and settlement systems in the country, which was established by the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) to develop and manage payment infrastructure for retail transactions.

The NPCI operates several widely used payment services, including the Unified Payments Interface (UPI), which allows users to transfer money between bank accounts instantly. Its role makes it a key institution in India's digital payments ecosystem.