MDR May Take Shape as Platform Fee Says Expert

Mumbai:Even as the government on Saturday issued a clarification that a future Merchant Discount Rate (MDR) on UPI payments would apply to a limited set of merchants and not to customers, payment experts believe that there is a high probability that merchants would pass on the MDR charges disguised as ‘platform fee’, ‘convenience fee’ or may embed the costs directly into the price of the product or service.

The debate on levying MDR on large merchants have gathered steam after the government proposed amendment to Section 10A of the Payment and Settlement Systems Act, 2007, through the Taxation and Other Laws (Amendment) Bill, 2026 to remove the blanket ban on charging MDR on UPI, which was enforced over six years ago.

“MDR will be an expense on the business of the merchants. There is a 200 per cent chance that merchants may pass MDR charges to customers in the product/service pricing, and customers may not even notice it. In some cases the merchant could camouflage the MDR charge as a platform fee or give it a different name” said Sai Krishna Musunuru, Director & CEO, Payinstacard.

“Another factor that should be considered is that the payment aggregators who are running the UPI payment infrastructure for the

entire ecosystem have been bearing losses for a very long time and would want to monetise UPI. If UPI is monetised, the payment aggregators' books will make decent profits,” added Musunuru.

Another payment expert emphasised on protecting the smaller merchants. “As and when MDR for UPI transactions is introduced, it is important to have guard rails to ensure that only such merchants and transactions are charged MDR as is intended by the government, RBI and there is no indirect charging of other (small) merchant transactions by way of hidden platform fees or charges," added an expert.

According to an industry official, MDR charges on UPI transactions that may be introduced would be similar to MDR on debit card

transactions as both are debited from the customer’s account. MDR is the commission that merchants pay to the banks and other payment companies for facilitating the transaction. There is no MDR on UPI payments, while debit cards transaction for small merchants (with turnover upto Rs 20 lakh) have MDR of 0.40 per cent while for other merchants it is 0.90 per cent. The MDR is much higher for credit cards.

UPI has grown into the world’s largest real-time payment system, processing 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone. UPI is now live in 11 foreign countries, and many other countries have shown interest.