The government decision to levy a minimal 0.4 per cent merchant discount rate (MDR) for certain payments over Rs 2,000 through Unified Payments Interface (UPI) starting October 15, 2026, has broke an major debate if consumer would shift to other modes, including debit or credit cards, for high-value payments
Responding to public debate over whether consumers and shopkeepers should shift to credit or debit cards to avoid charges, the National Payments Corporation of India (NPCI) has clarified that UPI remains by far the most economical digital payment method.
UPI vs Credit Card vs Debit Card Payment: MDR Calculation
The NPCI highlighted that even with the new 0.4% charge, UPI's MDR will be significantly lower than the processing fees levied on traditional transactions through debit cards and credit cards. For example, for a merchant transaction of Rs 10,000, credit cards incur around Rs 200 in charges and debit cards around Rs 90, whereas UPI costs only Rs 40.
According to NPCI estimates, UPI's MDR charges are up to 80 per cent cheaper than credit card merchant fees.
Payment Method | Estimated Merchant Charge | Fee on Rs 10,000 Transaction |
|---|---|---|
UPI | 0.4% (Capped at Rs 300) | Rs 40 |
Debit Card | Up to 0.90 per cent | Rs 90 |
Credit Card | About 2 per cent Average | Rs 200 |
Will Consumers Be Charged for UPI Payments?
NPCI has explicitly stated that consumers will face no additional charges for making UPI payments.
The 0.4% MDR is strictly a merchant-side fee applicable to shopkeepers and commercial establishments. Furthermore, the government has issued clear directives to banks and UPI service providers to prevent merchants from passing these fees on to end users. Consumers can continue using UPI for daily transactions without fear of hidden costs.
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Govt Introduces MDR Charges
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.