The National Payments Corporation of India (NPCI) has announced a pause on the rollout of a proposed Merchant Discount Rate covering certain person-to-merchant transactions conducted via UPI, with the fee structure now set to take effect only after the Diwali period concludes. A separate notice from NPCI will carry the updated rollout date once it has been confirmed.

The UPI and Services Steering Committee arrived at this arrangement on 13 October, with the festive period factored into its deliberations. Those fees had been scheduled to come into force on 15 October.

Under the terms of the plan, a merchant discount rate of 0.4% would be levied on certain person-to-merchant UPI payments exceeding ₹2,000. Merchants, rather than consumers, would absorb the charge, with a ceiling set at ₹300 once a transaction reaches ₹75,000 or above. Person-to-person transfers and the bulk of routine purchases at shops would carry no fees under the arrangement being put forward.

Revenue collected through the charge would go toward maintaining the infrastructure of the UPI ecosystem, covering areas such as cybersecurity, defences against fraud, system reliability, and user assistance. Industry figures cited in the Finance Ministry's September FAQ document place the yearly expense of running UPI at roughly ₹20,000 crore.

A merchant discount rate of zero has applied to RuPay debit card transactions and BHIM-UPI payments since January 2020, a policy designed to broaden the uptake of cashless payment methods. A ₹1,500-crore allocation for the 2024-25 financial year was put in place through incentive schemes aimed at encouraging merchants to adopt low-value BHIM-UPI transactions.

Pushback against the proposed MDR has come from traders and others with a stake in the digital payments space, with their objections centred on how the policy could affect uptake of cashless transactions and the viability of smaller enterprises. Critics of the proposal have pointed out that per-transaction charges could compress profit margins across the retail sector, with independently owned, smaller-scale businesses facing the steepest squeeze, and that some merchants may choose to stop accepting UPI as a payment method for certain purchases.

Those backing the plan contend that keeping UPI infrastructure in good repair and expanding its capacity depends on putting a reliable, long-term funding model in place. Authorities have described the MDR as a fee tied to the commercial upkeep of the UPI ecosystem, one that merchants rather than end users are expected to absorb.

Opposition parties and industry bodies have raised objections to fees being placed on a payment method that forms part of routine daily spending for many people. Trade associations representing retailers have flagged concerns that higher operating costs tied to digital payment processing could lead some smaller merchants to step back from card-based transactions.

Disagreements over financing arrangements for the digital payments ecosystem are expected to continue as the rescheduled rollout date draws nearer.