The Union Finance Ministry is working on a monitoring mechanism to ensure that merchants do not pass the newly introduced Merchant Discount Rate (MDR) on select UPI transactions to consumers, according to sources cited in a PTI report.
The ministry has begun discussions with payment aggregators and other participants in the UPI ecosystem to sensitise them about the new charge and ensure customers are not made to bear the cost.
MDR to apply from October 15
The National Payments Corporation of India (NPCI), which operates UPI, announced the MDR framework in a circular issued on September 15.
From October 15, a 0.4 per cent MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, while transactions between individuals and most everyday merchant payments will continue to remain free.
For transactions of Rs 75,000 or more, the MDR will be capped at Rs 300.
Sources told PTI that only around 4 per cent of UPI transaction volume would be affected by the new charge and therefore a decline in overall UPI usage is not anticipated.
Government rejects US pressure claims
The Finance Ministry on Thursday rejected allegations that the decision to introduce MDR was influenced by pressure from the US.
The Department of Financial Services (DFS) said the latest NPCI guidelines do not give international credit cards an advantage over RuPay.
"The NPCI circular of September 15, 2026, does not allow credit transactions on UPI by any other credit card other than the RuPay credit card. There is a clear policy of only allowing RuPay credit card on UPI to enable RuPay credit card to become the preferred choice of credit card amongst users in India," the DFS said in a post on X.
"The allegation that MDR has been introduced under any external influence is patently false and misleading," it added.
The clarification followed references to concerns raised in the US Trade Representative's 2026 National Trade Estimate Report about foreign electronic payment service providers' access to India's UPI ecosystem.
No major impact on UPI use expected
Sources cited in the PTI report also said the new MDR was unlikely to push consumers back towards cash or have an inflationary impact.
They pointed out that RuPay debit card transactions remain completely free regardless of the transaction amount.
The government is now focusing on monitoring how merchants and payment intermediaries implement the MDR, with the stated aim of ensuring the charge does not reach consumers.