NPCI defers UPI merchant fee rollout until after Diwali; most payments to stay free

The National Payments Corporation of India (NPCI) has postponed the introduction of a merchant discount rate (MDR) on some UPI payments until after Diwali. The charges had been scheduled to start on 15 October.

In a statement on Tuesday, 13 October, NPCI said its UPI and Services Steering Committee took the decision keeping the festive season in mind. The fee will be introduced soon after Diwali on a date that will be notified separately.

The deferral came just two days before the planned start date. Under the proposed rules, a Rs 5,000 payment to a large merchant, for example, could carry a fee of about Rs 20, subject to the final framework.

What was planned

The framework applies only to certain person-to-merchant (P2M) payments above Rs 2,000. Person-to-person transfers between individuals are not covered. According to reports, payments above Rs 2,000 to large merchants would carry a 0.4% fee, capped at Rs 300 per transaction, while payments in categories such as railways, telecom, insurance and fuel would attract a flat Rs 5 charge.

NPCI has estimated that only about 4% of merchant transactions would fall under the framework and that more than 95% of P2M payments would remain exempt. Small merchants will continue to pay no MDR.

Market reaction

Shares of digital payment companies, including Paytm's parent One 97 Communications, MobiKwik and Pine Labs, recovered from their intraday lows after the announcement, according to market reports.

What it means for users

Until the new date is announced, UPI payments will not carry the proposed fee. The deferral gives relief to retailers, restaurants and online sellers that see a sharp rise in digital payments during the festive shopping season. NPCI has not said whether the framework will change, whether any more categories will be exempt, or whether merchants will be allowed to pass the charge on to customers. For now, consumers paying through UPI apps at shops, restaurants or online stores will see no change.

UPI has become the default way to pay for a large share of Indian consumers, from small kirana purchases to bill payments, which is why any change to its cost structure is watched closely by merchants, banks and fintech firms alike. Further details are expected once NPCI announces the revised timeline.