UPI MDR Explained: Are Two In Three Shoppers Paying Over ₹2,000, Will Purchases Get Costlier?

Mumbai: The government announced an important change to the Unified Payments Interface framework on Tuesday, September 15. Under the new rules, merchants will have to pay a Merchant Discount Rate of 0.4 percent on specified UPI payments above Rs 2,000.

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The announcement triggered concerns over whether businesses might eventually pass this additional cost on to customers. The Centre later clarified that the MDR would affect only 0.4 percent of merchant transactions. However, UPI data for August has raised fresh questions about this claim.

What August UPI Data Shows?

A total of 2,451 crore UPI transactions were recorded in August, with their combined value touching Rs 29.82 lakh crore.

Around 63 percent of these transactions, measured by volume, were person-to-merchant payments. These include payments made by customers to shops, service providers and other businesses.

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The remaining 37 percent were person-to-person transactions, involving money transfers between individuals.

P2P Payments Dominate In Value

The picture changes when the value of transactions is considered.

Person-to-person payments accounted for nearly 70 percent of the total amount transferred through UPI during August. Person-to-merchant payments represented the remaining 30 percent.

This suggests that consumers make a large number of relatively small payments to merchants. In contrast, person-to-person transfers are fewer but generally involve higher amounts.

Does The Data Challenge The Government?

The Finance Ministry said around 96 percent of UPI merchant transactions are below Rs 2,000 or covered under the zero-MDR framework. Therefore, only about 4 percent of merchant payments would attract the new charge.

However, the August data cited in the report claims that 67 percent of transactions were above Rs 2,000, raising questions over the government’s estimate.

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There is an important distinction: the 63 percent figure represents the share of merchant payments in overall UPI transaction volume. It does not, by itself, show how many merchant payments exceeded Rs 2,000. A transaction-wise breakdown by payment size would be required for a direct comparison with the government’s 96 percent claim.

Relief For Small Merchants

The MDR framework provides protection to street vendors and small businesses classified under the person-to-person merchant category.

Such merchants will not be charged MDR if they receive UPI payments of up to Rs 1 lakh a month in their personal bank accounts.

UPI is now widely used not only to transfer money between individuals but also to pay shops and businesses. The real impact of the MDR change will depend on how merchants respond—and whether they absorb the charge, change payment options or pass the cost to customers.

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