UPI now has a merchant fee. What the October 2026 change means for your business
From 15 October 2026, larger UPI payments to merchants carry a 0.4% fee. Here is who pays, who is exempt, and what to check with your bank or payment partner.
Key takeaways
- From 15 October 2026, person-to-merchant UPI payments above ₹2,000 carry a 0.4% MDR, paid by the merchant.
- Payments of ₹2,000 or less stay free, person-to-person transfers stay free, and the fee is capped at ₹300.
- Small merchants with UPI receipts up to ₹1 lakh a month stay at zero MDR. It is a receipts test, not turnover.
- Merchants should not add the MDR to the customer's bill, so price it in the way you treat card charges.
Since January 2020, accepting UPI cost Indian merchants nothing. That changed on 15 October 2026, when a merchant discount rate (MDR) framework for UPI came into force. With UPI now handling more than 25 billion transactions a month (25.47 billion in October 2026, worth about ₹31.5 lakh crore, as per NPCI data), this is one of the biggest pricing changes in Indian payments in years.
I’ve spent most of my career selling payments to merchants, from QR codes on shop counters at BharatPe to payment gateways and banking partnerships at SabPaisa and PhiCommerce. Here is the plain-language version of what changed.
What changed on 15 October 2026
- Person-to-merchant (P2M) UPI payments above ₹2,000 now carry an MDR of 0.4%, paid by the merchant.
- Payments of ₹2,000 or less remain free.
- The fee is capped at ₹300 per transaction, which applies from ₹75,000 upwards.
- Essential categories such as railways, telecom, insurance, fuel and utility bills pay a flat ₹5 on payments above ₹2,000.
- Capital markets (mutual funds, brokers) pay 0.02%, capped at ₹300.
- Person-to-person transfers stay free.
A quick example: a ₹3,000 bill costs the merchant ₹12, a ₹50,000 invoice costs ₹200, and anything from ₹75,000 upwards costs ₹300.
Who is exempt
Small merchants and street vendors whose inward UPI receipts are up to ₹1 lakh a month stay at zero MDR. This is a receipts test, not a turnover test. If a merchant receives more than ₹1 lakh a month for three months in a row, they move into the regular P2M category.
Can you pass it on to customers?
No. The framework says merchants should not add the MDR to the customer’s bill. Price your products knowing this is now a cost of doing business, the same way you already treat card charges.
Where the money goes
The 0.4% is split across the system: most of it goes to the customer’s bank, a small share to the UPI app and the acquiring bank. A share of collections is also set aside to support UPI adoption among small merchants. The thinking is simple: running UPI costs banks thousands of crores a year, and a self-sustaining model pays for better uptime and security.
What I would do this month as a business owner
- Ask your bank or payment partner for your new rate card in writing. Confirm which category you fall in.
- Check your average ticket size. If most of your UPI payments are under ₹2,000, very little changes for you.
- Compare UPI with your other modes for large tickets. For B2B invoices, net banking or NEFT may now be cheaper than UPI.
- Review your settlement and reconciliation. Make sure the MDR shows up clearly in your statements so your accounts team can match it.
- Don’t panic and switch customers back to cash. At 0.4% with a ₹300 cap, UPI is still cheaper than most card payments and far cheaper than the hidden cost of handling cash.
UPI is still one of the cheapest ways in the world to get paid. The change asks larger merchants to pay a small share of what it costs to run.
If you’re not sure how this affects your business, or you want to compare payment partners, I’m happy to help you think it through.
Sources: NPCI monthly UPI statistics; public reporting on the UPI MDR framework announced in September 2026. Rates can differ by category, so confirm your exact pricing with your acquiring bank or payment aggregator.
FAQ
Frequently asked questions
What is MDR on UPI payments?
MDR, or merchant discount rate, is the fee a merchant pays on UPI payments it receives. From 15 October 2026, person-to-merchant UPI payments above ₹2,000 carry an MDR of 0.4%, capped at ₹300 per transaction. Payments of ₹2,000 or less remain free, and person-to-person transfers stay free. Essential categories such as railways, telecom, insurance, fuel and utility bills pay a flat ₹5 instead.
Which merchants are exempt from the UPI merchant fee?
Small merchants and street vendors whose inward UPI receipts are up to ₹1 lakh a month stay at zero MDR. This is a receipts test, not a turnover test. If a merchant receives more than ₹1 lakh a month for three months in a row, they move into the regular person-to-merchant category, where the 0.4% fee applies on payments above ₹2,000.
Can merchants pass the UPI MDR on to customers?
No. The framework says merchants should not add the MDR to the customer's bill. The better approach is to price your products knowing this is now a cost of doing business, the same way you already treat card charges. At 0.4% with a ₹300 cap, UPI is still cheaper than most card payments and far cheaper than the hidden cost of handling cash.