UPI adds 0.4% MDR on P2M payments above ₹2,000 in India from 15 October

India’s UPI is no longer free for every merchant-facing transaction. From 15 October, NPCI will apply a 0.4% MDR (merchant discount rate) on P2M payments above ₹2,000, which matters for high-risk operators because it changes the economics of the one domestic rail many of them already had to use.

1. P2M payments above ₹2,000 will carry a 0.4% MDR from 15 October, while P2P transfers — including transfers between people and between own accounts — remain free. In other words, the old distinction between consumer rails and merchant acceptance just became a pricing issue.
2. The fee is charged to the merchant by the acquiring bank and cannot be passed on to the customer. Inside the 0.4%, 0.28% goes to the issuer bank as interchange, 0.08% goes to the UPI app provider, and 0.04% goes to the acquirer.
3. Small merchants are exempt if they accept payments through QR codes under the P2PM scheme up to ₹1 lakh per month. Once that threshold is breached for three consecutive months, the merchant is moved into the P2M category and the fee applies.
4. For high-risk businesses, this is not just a pricing tweak. P2M now has a real cost base while P2P still does not, which strengthens the incentive to route collections through P2P-style flows. For operators using collection accounts for small merchants, ₹1 lakh per month becomes a practical structuring threshold across multiple QR acceptance points.
5. The scale is already large: in August, UPI processed 24.5 billion transactions worth about $340 billion. Even a 0.4% fee on part of that volume is a new revenue stream inside the system, and one that PSPs, acquirers, and merchant-facing high-risk businesses will have to price into their setup.

The thing is, UPI was never attractive to high-risk merchants because it was cheap; it was attractive because there was often no other workable domestic rail inside India. With frozen accounts, investigations into providers, and stalled settlements already part of the landscape, MDR simply adds another cost layer to an already tight operating model.