UPI: Centre asks banks to ensure MDR charges are not passed on to customers, say sources

The central government has asked the banks to ensure that the MDR charges on UPI payments above ₹2000 are not passed on to the customers. Sources pointed out that the government will keep a close watch on this, while also maintaining that around 96% of the transactions will remain unaffected.

"Banks have been advised to ensure that merchants do not pass on MDR charges UPI payments above ₹2000 to customers," said a government source.

Sources said MDR is not tax or a cess or urcharge. "Not a single rupee of MDR goes to the Government of India or the Consolidated Fund of India. MDR stays within the payment ecosystem," sources pointed out.

Sources said the rationale behind introduction of the MDR charges on high value transactions is to make the UPI ecosystem, including servers, payment infrastructure, and fraud prevention more robust.

"This is to make India's indigenous UPI ecosystem financially sustainable over the long term. This will helps fund servers, payment infrastructure, cybersecurity, fraud prevention & customer support," sources said.

Sources said MDR on high value transactions will help expand UPI deeper into rural and semi-urban India.

"This will also bring more citizens and merchants onto UPI. India had 55.49 crore UPI users as of June 2026, leaving substantial room for expansion. This will help in expansion and improve products such as Credit on UPI, UPI 123Pay/feature-phone payments and new payment services," sources pointed out. 

Earlier today, the National Payments Corporation of India (NPCI) said any move towards introducing a merchant discount rate (MDR) on UPI transactions should not result in additional charges being passed on to consumers, while calling for greater investment from participants across the digital payments ecosystem.

NPCI chief executive Dilip Asbe said the ecosystem has operated with zero MDR on UPI for six years, making any attempt to reinstate the charge a difficult transition. He said participants, regulators, the government and citizens would need to work together to ensure the digital payments system continues to evolve.

On September 14, the union finance ministry notified amendments in the Payments and Settlement Act, 2007 making way for MDR on  UPI transactions over ₹2000.