UPI MDR Move Sparks Debate In Fintech Industry: What Nithin Kamath, Ashneer Grover, And Sameer Nigam Said

The business leaders from India’s fintech industry expressed mixed reaction over government move to levy a merchant discount rate (MDR) on certain payments over Rs 2,000 using unified payment interface (UPI).  While some industry executives, including Nithin Kamath of Zerodha and Sameer Nigam of PhonePe, welcomed the move—saying UPI will remain free for common citizens—Ashneer Grover, former Founder of BharatPe, expressed deep concerns. 

In a post on X, Nithin Kamath, founder of stock broking platform Zerodha, notes that while MDR could encourage competition, applying it to broking poses financial risks due to frequent, non-transactional money transfers driven by regulatory rules.

“I think MDR on UPI was probably inevitable at some point, especially given how widespread UPI adoption has become. It could also lead to more competition, instead of just three apps accounting for more than 95% of the market. That being said, there are some use cases, like investing and broking, where the proposed MDR structure doesn’t really make sense,” Kamath noted. 

According to Zerodha’s founder, the problem with broking is that there is no guarantee that money transferred to a broker will actually result in a transaction.

“As brokers, we can’t force a customer to trade after transferring money. And if we can’t pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue,” Kamath added. 

Ashneer Grover, Entrepreneur and Former founder of BharatPe, condemned the MDR charges, saying UPI can remain free permanently without government subsidies. He pointed to NPCI's strong balance sheet, cash reserves, and operating profits.

Also Read: EPFO Wage Ceiling Hiked To Rs 25,000: Who Is Eligible And How It Impacts 51 lakh Formal Sector Employees

“NPCI, which runs UPI, has Rs 6,119 hard cash on its balance sheet and pre-tax operating profit of Rs 1,900 crores. NPCI apne cash pe and profits par zindagi bhar UPI free chala sakti hai. Government ka kuchh lena dena hi nahi hai. Government earned Rs 1,000 crores in tax from NPCI last year,” Grover argued in a post on X. 

Meanwhile, Sameer Nigam, founder of India’s largest UPI app PhonePe, emphasises that UPI payments will remain 100 per cent free for all retail consumers in India.

“𝐔𝐏𝐈 𝐢𝐬 𝐚𝐧𝐝 𝐰𝐢𝐥𝐥 𝐫𝐞𝐦𝐚𝐢𝐧 𝐟𝐫𝐞𝐞 𝐟𝐨𝐫 𝐚𝐥𝐥 𝐈𝐧𝐝𝐢𝐚𝐧 𝐜𝐨𝐧𝐬𝐮𝐦𝐞𝐫𝐬! ‘Consumers will NOT BE CHARGED anything for making UPI payments,' Nigam posted on X. 

0.4% MDR for Above Rs 2,000 (P2M) Payments 

Person-to-Merchant (P2M) transactions above Rs 2,000 will attract a 0.4 per cent Merchant Discount Rate (MDR). However, the fee will be shared among the facilitators, including banks and App providers, the government said.

"A nominal MDR of 0.4% will be levied on P2M transactions above Rs 2,000. This commission will be shared amongst the payment ecosystem partners, including banks and app providers," the Ministry of Finance said.

Additionally, for high-value transactions of Rs 75,000 and above, MDR will be capped at Rs 300 per transaction. Meanwhile, according to the government, person-to-person (P2P) transactions will not attract any charges irrespective of transaction value.

"For person-to-person (P2P) transactions, there will be no charges at all, irrespective of transaction value. P2P transactions constitute 37 per cent of the total UPI transactions in volume terms and 70 per cent in value terms," the ministry stated.

Capital market transactions

Payments made for mutual funds, securities, stock brokers, and dealers through UPI will attract a nominal MDR of 0.02 per cent, and the maximum MDR has been kept at Rs 300.

"This reduced rate encourages retail participation in formal financial markets," the government said. 

Also Read: UPI Payment Charges: 0.4% MDR For Merchants From Oct 15, Zero Fees On Person-To-Person Transactions.

Will Small Vendors Pay MDR?

Small merchants- street vendors and other small business owners-- who get up to Rs 1 lakh per month via UPI QR codes under the Person-to-Person-Merchant (P2PM) will not have to pay MDR. 

"Small merchants receiving up to Rs 1 lakh per month via UPI QR codes under the Person-to-Person-Merchant (P2PM) classification will continue to enjoy mandatory zero MDR for all transactions," the ministry informed. 

UPI App To Not Levy Platform Fee

The UPI app providers are explicitly prohibited from levying platform fees or hidden charges. Additionally, Banks have been advised to ensure that merchants do not pass MDR charges to customers for UPI payments.