The implementation of a 0.4% merchant discount rate (MDR) on UPI transactions above Rs 2,000 could be delayed until after the festive season, with the National Payments Corporation of India (NPCI) considering a postponement to January 2027, reported Moneycontrol.
The report, citing two sources, said NPCI has received requests from merchant bodies, fintechs and payments companies to defer the rollout, with concerns around varying MDR rates, their applicability across different transactions and the readiness of businesses for the new system.
NPCI is expected to take a decision within the next two days as discussions are underway with the finance ministry, the report said.
The 0.4% MDR was fixed by the Steering Committee last month for transactions above Rs 2,000 and was scheduled to come into effect from October 15, 2026. MDR is the fee paid by merchants to banks for processing digital payments. At 0.4%, the charge would work out to Rs 8 on a Rs 2,000 transaction and Rs 40 on a Rs 10,000 transaction.
According to the report, several payment industry bodies and merchants have asked NPCI to postpone implementation until the festive season is over.
One source told the publication that the government is also concerned that MDR could raise the cost of doing business during the festive sales period, at a time when inflation is already putting pressure on consumers.
There are also concerns that higher transaction costs could eventually be passed on to consumers by merchants.
The report said the industry is worried that consumer sentiment could weaken ahead of the festive sales season as rising inflation affects purchasing power.
A major issue behind the request for a delay is the complexity around how MDR will apply to different types of UPI payments.
Unlike card payments where rates are relatively uniform, UPI has different rates for categories such as utility payments, loan repayments and capital market transactions.
This has led to questions among payment companies and merchants over which transactions will attract the 0.4% charge and which will be subject to different rates or flat fees.
Capital market participants have also raised concerns with the market regulator over MDR on payments made by customers to add money to their broking accounts. Their argument is that such transactions are similar to person-to-person payments and that broking companies should not have to bear MDR when they do not earn revenue from those transactions, according to the report.
Loan repayments are another area where the industry is seeking clarity.
According to the report, NPCI’s MDR directive provides for a Rs 5 flat fee for loan payments made through auto-debit mandates.
However, small-ticket loan auto-debits can often fail when customers do not maintain the required minimum balance. If the borrower subsequently makes a manual repayment, the transaction is treated as a financial institution payment and attracts a 0.4% MDR.
NPCI has clarified that such payments should also attract the Rs 5 flat fee, but there is still confusion over how banks and payment aggregators should distinguish loan repayments from regular financial services transactions.
The uncertainty around such transactions is among the reasons merchants and industry players have sought more time to iron out the differences before the MDR rollout.
If NPCI postpones the implementation, merchants and payment companies would get additional time to understand the new MDR structure and prepare their systems.
For consumers, the immediate implication is that the proposed 0.4% charge may not start from October 15 as originally planned. However, whether merchants ultimately absorb the cost or pass some of it on to customers remains an open question.
For the payments ecosystem, the bigger issue is establishing a clear framework for how MDR will apply across different UPI transaction categories before the charges are implemented at scale.
Moneycontrol said NPCI could not be reached immediately for comment and that it had written to the payments body for a response.
The report therefore does not establish that the postponement has been finalised. The proposal remains under consideration, with a decision expected shortly.