UPI MDR ruling: FinMin rejects claims of US influence, says NPCI rules aim to boost domestic competition | Today’s news
The finance ministry on Thursday (September 17) rejected allegations that US pressure influenced the decision to introduce a 0.4% merchant discount rate (MDR) on select UPI transactions, saying the latest NPCI guidelines do not give international credit cards any advantage over RuPay on the UPI platform.
The Department of Financial Services (DFS) issued the clarification in response to comments in the US Trade Representative’s (USTR) 2026 report that raised concerns about the inability of US electronic payment service providers to engage with India’s UPI ecosystem, including UPI credit transactions, on the same terms as RuPay.
“No benefit for foreign credit cards”
DFS said the NPCI circular issued on September 15 does not allow UPI credit transactions through credit cards other than RuPay.
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From October 15, 2026, 0.4% MDR will be applicable on UPI payments between merchants above ₹2,000, where the fee will be borne by the merchants, with a cap of ₹300 on transactions of ₹75,000 or more.
MDR aims to create a sustainable revenue framework for the digital payments ecosystem and help smaller companies compete more effectively under the UPI system.
Small merchants earning up to ₹100,000 per month through UPI will be exempted from MDR, which will cover around 96% of all business transactions, minimizing the impact on them.
Consumers will not be charged for the merchant’s discount rate; personal transfers remain free and MDR applies only to certain business transactions above ₹2,000.
For essential services like railways, telecom, fuel and insurance, there is a flat charge of ₹5 on transactions above ₹2,000.
“The NPCI circular dated September 15, 2026 does not allow credit transactions on UPI by credit card other than RuPay credit card,” DFS said.
He added that there is a clear policy to allow only RuPay credit cards on UPI to promote RuPay as a preferred credit card among Indian users.
“The claim that the MDR was introduced under any external influence is patently false and misleading,” the ministry said.
The clarification comes amid allegations by some opposition parties, including the Congress, that the government imposed the 0.4% MDR following pressure from the US.
NPCI says the MDR aims to encourage domestic competition
The finance ministry said the NPCI decision is part of the existing policy framework under which only RuPay credit cards can be linked with UPI for credit transactions.
On September 15, NPCI issued a circular introducing MDR on select UPI transactions as part of efforts to create a sustainable revenue framework for the digital payments ecosystem.
In terms of market share, NPCI said it mandated a 30% cap on third-party application providers (TPAPs) in November 2020. However, implementing the cap has been difficult as smaller companies have not been able to compete with market leaders as there is no self-sustaining revenue model.
“The introduction of MDR on select high-value transactions will provide a self-sustaining revenue model for smaller companies to compete for a higher share of the UPI ecosystem,” NPCI said.
The organization said the move is to allow more domestic companies to expand their operations and described it as a measure aimed at protecting India’s sovereignty in the electronic payments ecosystem.
Read also | UPI Payments: GST is applicable on MDR but customers should not bear the cost
What is the new UPI MDR?
From October 15, merchant-to-merchant UPI payments will be subject to an MDR of 0.4% above ₹2000. The levy will be paid by traders rather than consumers and will be limited to ₹300 for transactions amounting to ₹75,000 or more.
Payments between individuals and most everyday business transactions will continue to be free.
For essential services such as railways, telecommunications, fuel and insurance, flat ₹A fee of 5 applies to the above transactions ₹2000.
Capital market transactions, including mutual funds and stockbroking payments, will attract a lower 0.02% MDR, also capped at ₹300.
Small traders exempted from MDR
Small traders collecting up to ₹1,00,000 per month through UPI QR codes will remain exempt from the new fee.
Officials said the exemption is expected to cover about 96% of all business transactions.
UPI QR payments to merchants in rural and semi-urban areas will also remain free.
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