RBI announced today that the 0.4% merchant discount rate (MDR) on person‑to‑merchant UPI transactions will now take effect on 1 January 2027, instead of the previously slated 15 October 2026. This decision follows intense lobbying from industry groups that feared the fee would squeeze margins during India’s peak retail period, when digital payments surge amid Diwali and other festivals.
The MDR framework, approved by the National Payments Corporation of India (NPCI) on 15 September, caps the fee at ₹300 for transactions of ₹75,000 and above, leaving about 96% of UPI‑M transactions unaffected. The rule was designed to generate a revenue stream for banks and payment aggregators after six years of zero MDR.
Trade bodies argued that the fee could dent sales during the holiday season, when merchants typically offer discounts and consumers rely heavily on UPI for quick payments. By pushing the implementation back, the RBI aims to give retailers time to adjust pricing models and inform customers of the new cost structure.
The RBI is expected to issue a formal notification in the next few days, confirming the new start date and outlining the compliance timeline for banks, payment aggregators and merchants. Meanwhile, merchants across the country are already revising their accounting systems to accommodate the upcoming fee, with many small‑scale businesses noting the need for extra cash‑flow buffers.
Once the MDR becomes active on 1 January, banks will collect the 0.4% fee on eligible transactions above ₹2,000, ensuring that the fee is capped and that smaller transactions remain free. The RBI’s decision is likely to smooth the transition and mitigate potential disruptions to the digital payments ecosystem.