The landscape of digital payments in India is set for a structural transformation as authorities prepare to implement a 40 basis point (0.40 percent) Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions. Operating entirely on a zero-charge model since January 2020, UPI revolutionized retail commerce across the country. However, the anticipated regulatory shift aims to address the financial sustainability of banks and payment aggregators, providing a dedicated revenue stream to support, maintain, and expand the massive technological infrastructure underlying India’s digital economy.
Who Will Pay the New Charges and Exemptions for Ordinary Users
Despite the introduction of the new merchant fee, everyday consumers and small-scale vendors remain fully shielded from any direct financial burden. The 40 basis point MDR will exclusively apply to large merchants with annual turnovers exceeding Rs 1 crore to Rs 1.5 crore, and crucially, only on transactions that cross the Rs 2,000 threshold. Peer-to-peer (P2P) transfers between individuals, as well as payments made to neighbourhood tea stalls, vegetable vendors, and small local shopkeepers via QR codes, will continue to remain completely free of cost.
Revenue Distribution Between Banks and Third-Party Payment Apps
Under the upcoming regulatory framework, the generated MDR revenue will be systematically distributed among the financial stakeholders responsible for processing digital transfers on a 40-30-30 split basis. The issuing bank—the financial institution holding the customer’s account from which funds are debited—will receive the largest share at 40 percent. Meanwhile, third-party application providers (TPAPs) such as Google Pay, PhonePe, and Paytm, alongside the merchant’s acquiring bank, will each receive a 30 percent share. This revenue-sharing model is designed to compensate payment apps and banks for operational costs while reinforcing the security and reliability of India’s booming digital payment network.