How does MDR on UPI compare to charges on traditional debit and credit cards? Here’s what NCPI’s FAQs say…
The National Payments Corporation of India (NPCI) last week announced merchant discount rate (MDR) for select UPI transactions, with the official release stating that there is “no impact on any person-to-person transactions”.
In a detailed FAQ document, the organisation said MDR charge of 0.4% would apply on Person-to-Merchant (P2M) UPI transactions above ₹2,000, from 15 October. However, charges are capped at ₹300 per transaction for payments of ₹75,000 and above.
Further, UPI will continue to remain completely free for all P2P transactions, irrespective of the amount transferred, it added. A Finance Ministry statement noted, “Therefore, UPI transactions accounting for 70% of the total transaction value will remain completely outside the MDR framework.”
How does MDR compare for UPI vs traditional cards?
According to the NPCI factsheet, MDR on UPI is structured to be much lower than all traditional card-based transaction fees. As per the document:
- Standard credit card MDRs typically range from 1.5% to 2.5% per transaction.
- MDR on debit cards are capped up to 0.90%.
- The baseline UPI MDR at 0.4% on transaction above ₹2,000 and cap of ₹300 for high-value purchases, keeps UPI “the most affordable digital payment acceptance tool for commercial enterprises”, as per the FAQs sheet.
- “This cost difference helps merchants lower their payment processing expenses while accepting digital transactions,” it added.
How is MDR calculated on exact transactions?
Explaining the how MDR will be calculated, the NPCI said it follows “a clear, predictable formula based on transaction value thresholds”. This is broken down in detail below:
- For a ₹3,000 purchase, applying the 0.4% rate results in an MDR fee of ₹12 paid by the merchant to its acquiring bank.
- For a ₹50,000 purchase, a 0.4% fee equals ₹200.
- However, for a high-value purchase of ₹1,00,000, the 0.4% calculation (which equals ₹400) is superseded by the fixed maximum cap of ₹300.
- Further, any transaction under ₹2,000 incurs no MDR.
| Amount paid to Merchant | Applicable MDR | MDR paid by Merchant |
|---|---|---|
| ₹2,000 | NA | ₹0 |
| ₹3,000 | 0.40% | ₹12 |
| ₹50,000 | 0.40% | ₹200 |
| ₹75,000 and above | Fixed ₹300 | ₹300 |
| Source: NPCI | ||
Does MDR apply to credit cards linked on UPI or credit lines?
The NPCI document noted that credit-linked UPI payments, such as RuPay Credit Cards linked to UPI or pre-sanctioned bank credit lines, operate under separate credit product rules.
“Because credit linked transactions involve short-term loans funded by issuing banks, they follow standard credit card guidelines. The MDR discussed in this amendment apply specifically to direct users-account-to-merchant-account UPI transactions,” it added.
What is MDR? Why is it being charged?
According to the release, MDR is not a tax or charge collected by the government or NPCI, but is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.
“Introduced under the Payment and Settlement Systems Act, 2007, following detailed deliberations by the UPI Steering Committee, the framework seeks to ensure the long-term sustainability of UPI while protecting individuals and small merchants from additional charges,” it stated.
The ministry added that this framework has been introduced under the Payment and Settlement Systems Act, 2007, following “detailed deliberations by the UPI Steering Committee on the applicable rates, operational arrangements and consumer safeguards”.
“Revenue generated from larger merchant transactions will support banks, payment service providers and UPI application providers in expanding and improving payment infrastructure, including in rural and semi-urban areas,” it added.
