On 13 October 2026, two days before it was due to start, NPCI postponed the merchant discount rate (MDR) on select UPI person-to-merchant (P2M) payments until after Diwali. It has set no new date and says it will notify one separately. Merchant bodies and fintechs had asked for January 2027. This article takes the postponement as reported in the news hook; the details of the fee itself below come from the published framework.
The case for charging something
The strongest argument for the fee is that a free service is not free for anyone. Somebody pays for the issuing banks, the payer apps and the switching infrastructure that carry UPI. For years that burden fell on those institutions, with a government incentive scheme covering part of it. Under the framework published in September, as reported by Inc42, the 0.4% is split 0.28% to the issuer bank, 0.12% to the payer's PSP and 0.08% to app providers, and 5% of collections is earmarked for a fund to help small merchants adopt UPI. A network that cannot pay its participants eventually degrades. That is a serious point, and nothing in this article dismisses it.
The design is also more careful than the headline suggests. According to PRS India's September 2026 review, UPI transactions up to Rs 2,000 are not charged. The rate is 0.4% above that, capped at Rs 300. Railways, telecom, insurance and fuel pay a flat Rs 5. Capital-markets payments pay 0.02%. Standing instructions and small merchants receiving up to Rs 1 lakh a month through QR codes stay at zero. NPCI says around 95% of P2M transactions fall below the Rs 2,000 threshold, and the government's line, relayed to the Supreme Court, is that roughly 96% of users are exempt.
Why a delay was still the right call
The problem is not the headline rate. It is the transition. Industry participants told NPCI that implementing different rates across transaction categories needed more time, and traders objected to a new charge landing in the festive season, as Kotak Neo and Business Today reported. A tiered schedule that mixes percentage fees, caps and flat fees depends on correct merchant-category tagging in every bank and app. Errors at launch would mean wrongly charged merchants and refund disputes, which hurt trust in a system whose value rests on being boringly reliable.
Retailers also warned that the fee could push small merchants back to cash. The Chamber of Trade and Industry estimated that transactions above Rs 2,000 could fall by as much as 50%. That is a trade body's estimate, not a measurement, and it applies only to the slice above the threshold. But the behavioural risk is real. Merchants whose margins are thin may pay the fee, round prices up, or steer customers to cash for large purchases. Any of these would undo years of formalisation, and the data trail UPI creates is itself a public good for credit access.
The open-ended date is the real problem
A postponement with no date solves the festive-season problem and creates another. Merchants, banks and app providers now have to build, test and budget for a change that may arrive in weeks or months. Acquirers cannot price contracts. Fintechs cannot decide whether to build tagging logic now. The industry's own request, January 2027, was a concrete date that would have allowed planning.
The legal questions are also unresolved. The framework rests on the August 2026 amendment to the Payment and Settlement Systems Act, 2007, which lets the central government notify electronic payment modes that cannot be charged to users, per PRS. On 28 September the Supreme Court declined an interim stay on a public-interest petition but issued notice to the Centre, the RBI and NPCI, and asked the Centre to file a counter-affidavit within four weeks explaining the legal basis, ThePrint reported, citing PTI. The Additional Solicitor General argued the MDR is "neither a tax nor a fee" but a settlement fee among payment players. The counter-affidavit deadline falls around the end of October, so the delay also gives the government room to answer before money changes hands.
What proportionate implementation looks like
Three steps would make the delay useful rather than merely convenient.
- Publish a date with a fixed notice period. Ninety days gives acquirers and small-business software vendors time to build and test. NPCI's own FAQ on MDR on select UPI P2M transactions already shows the machinery for guidance exists.
- Measure before and after. Publish the share of P2M volume in the charged band, merchant churn to cash, and category-tagging error rates. If the 50% fear is wrong, the data will say so. If it is right, the regime needs revision before it becomes entrenched.
- Make the legal basis public and stable. A fee that survives only because courts decline to stay it is fragile. The Centre's affidavit should set out the rate-setting formula, the ceilings and who reviews them.
India built UPI by making it cheap enough that nobody thought about it. Making it self-funding is a reasonable goal, and the tiered design shows regulators have thought about the poorest merchants. But a fee that is delayed indefinitely, defended in court as neither tax nor fee, and tagged by category is a lot of complexity to hand to millions of shopkeepers. Predictability is part of the product, and the next notification should restore it.