Merchant associations, fintech companies and payment service providers have urged the National Payments Corporation of India (NPCI) to defer the introduction of the Unified Payments Interface (UPI) merchant discount rate until January 2027, citing unresolved questions about transaction categories, applicable charges and implementation readiness.
The request comes ahead of the scheduled October 15, 2026 rollout. According to a Moneycontrol report citing people familiar with the discussions, NPCI is consulting the Finance Ministry and is expected to consider the industry’s representations shortly. The report did not confirm that a postponement had been approved.
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What The Proposed MDR Framework Means
MDR is the payment-processing fee borne by a merchant when accepting a digital payment. Under the reported UPI framework, specified person-to-merchant transactions exceeding ₹2,000 would attract a charge of 0.4%, equivalent to 40 basis points.
For an eligible ₹5,000 transaction, the charge would amount to ₹20, while an eligible ₹10,000 payment would attract ₹40. The framework provides a maximum charge of ₹300 per transaction. The percentage should not be read as a fee on every UPI transfer, since exemptions and category-specific provisions form part of the reported structure.
The distinction between payments above ₹2,000 and those at the threshold is also relevant. Although 0.4% of ₹2,000 equals ₹8 mathematically, a transaction of exactly ₹2,000 does not fall within a rule described as applying to payments exceeding that amount.
Industry Wants Operational Questions Resolved
According to the report supplied, the industry’s concerns extend beyond the additional cost of accepting payments. Merchants and payment companies say they need greater clarity on how different transactions should be classified and how the corresponding charges should be applied.
UPI supports payments for retail purchases, utilities, financial services, loan repayments and investment-related activities. Applying a differentiated fee structure across these uses requires banks and payment intermediaries to identify the purpose of a transaction accurately.
Where participants interpret a category differently, the same payment could potentially receive inconsistent treatment. The representations seek additional time to resolve such differences before the framework becomes operational.
Festive Trading Adds To Concerns
The timing of the proposed rollout has become another point of concern. Introducing a new merchant charge during the festive sales period could add to business costs when retailers are handling higher transaction volumes, promotional offers and pressure on margins.
The supplied report attributes concerns about inflation and purchasing power to sources familiar with the discussions. Industry participants fear that additional payment costs could affect pricing decisions and consumer spending during the season.
Those concerns should be distinguished from the rules governing the charge. Reuters reported that the announced framework prohibits passing the MDR on to consumers. Any apprehension about an indirect effect on retail prices is therefore separate from permission to impose an additional UPI fee on customers.
Why Transaction Classification Matters
Merchant category codes help payment networks identify the type of business receiving a payment. However, the nature of UPI transactions creates additional questions because transfers to the same recipient may serve different purposes.
A payment to a financial institution, for example, may represent a loan instalment or another financial service. If these uses attract different charges, identifying the recipient alone may be insufficient to determine the applicable fee.
The industry’s request consequently involves both policy clarification and operational preparation. Payment systems need to recognise the relevant categories consistently, while merchants require clear information about the charges that will apply to their receipts.
Loan Repayments Illustrate The Difficulty
The supplied report highlights loan repayments as an example of the classification problem.
Under the directive described in the report, loan payments made through auto-pay mandates attract a flat ₹5 charge. Questions arise when an automatic debit fails because the borrower has insufficient funds and the borrower subsequently makes a manual repayment.
Industry participants reportedly raised concerns that the later payment could be classified as a general financial institution transaction attracting the percentage-based MDR, even though its purpose remained repayment of the same loan.
The report states that NPCI clarified that such loan repayments would attract the flat ₹5 fee. The remaining operational question is how banks and payment aggregators should distinguish these payments from other transactions involving banks or non-banking financial companies.
Brokers Question Charges On Investment Funding
Capital market participants have also raised concerns about the treatment of money transferred by customers into their broking accounts, according to the supplied report.
Their argument is that adding funds to an investment account does not itself generate brokerage revenue. They have questioned whether such transfers should attract merchant charges in the same manner as payments for goods or services.
This objection highlights a broader issue: receiving funds through UPI does not necessarily mean the recipient has earned income from that particular transfer. Industry participants want the framework’s application to reflect these differences.
January 2027 Remains A Proposed Timeline
A separate Financial Express report has indicated that the rollout could move to January 1, 2027, allowing additional preparation time. However, that report also presents the revised timeline as a likely development rather than a confirmed decision.
The immediate issue is whether NPCI will retain the October 15 implementation date or provide more time to settle category definitions and operational arrangements. Until a formal announcement confirms a change, the industry’s request for January 2027 should be understood as a proposed postponement.
