PhonePe, MobiKwik founders welcome 0.4% MDR on UPI merchant payments

PhonePe founder and CEO Sameer Nigam and MobiKwik co-founder Upasana Taku have welcomed the 0.4% Merchant Discount Rate on UPI merchant transactions above ₹2,000. Taku called it a "very positive step". Nigam, noting 70-80 crore daily UPI transactions, said the revenue would help recover operational costs. The government has clarified that person-to-person transfers and merchant payments up to ₹2,000 remain free, and customers will not pay the charge. For transactions of ₹75,000 or more, MDR is capped at ₹300.

Written by AI from Hindustan Times — India · not yet reviewed by an editor · Published 16 Sept 2026, 1:06 pm IST

Source

Hindustan Times — India · read the original report ↗

#upi#mdr#digital payments#phonepe#mobikwik#fintech

Desk check · compared with the source

What the desk checked (5)

A 0.4% MDR will apply to merchant UPI transactions above ₹2,000, capped at ₹300 for transactions of ₹75,000 or more. — Figures appear in the source, attributed to the government's framework as described by Hindustan Times.
Person-to-person UPI transfers and merchant payments up to ₹2,000 remain free, and customers will not pay MDR. — Attributed in the source to a government clarification issued on Tuesday; no document cited.
PhonePe CEO Sameer Nigam said 70-80 crore UPI transactions take place daily and 0.4% is among the lowest MDR rates in the world. — Directly attributed quote; Nigam himself qualifies the global comparison as 'to the best of my knowledge'.
MobiKwik co-founder Upasana Taku called the move a 'very positive step' and said small merchants with monthly sales around ₹1 lakh are exempt. — Attributed quote given to news agency ANI; exemption threshold stated by Taku, not independently sourced.
Around 60 lakh merchants already pay MDR on RuPay, Visa and Mastercard credit card transactions. — Attributed to Nigam; no supporting data cited in the source.

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Analysts’ view opinion

AI Economic Analyst

This is the shift from an era of 'free' digital payments to one where somebody has to carry the cost. Until now banks and payment companies absorbed UPI's infrastructure bill; a 0.4% MDR on merchant transactions above ₹2,000 finally routes some revenue from large merchants back to them. It is no surprise that the PhonePe and MobiKwik founders welcomed it — a sector that has scaled volume without a revenue model gains directly. The government says consumers pay nothing, and the real test is whether that holds in practice.

The gainers are clear: banks and payment apps get a route to recover operating costs, and the industry says the money will be reinvested in expanding UPI.
The cost sits with large merchants — high-value spends like flight tickets, e-commerce and expensive retail purchases — while industry voices say small merchants with modest monthly sales stay exempt.
In relative terms 0.4% is far below typical credit-card MDR of roughly 1.5-2.5%, so UPI remains the cheaper acceptance option for merchants.
Capping MDR at ₹300 for transactions of ₹75,000 or more looks designed to stop very large payments from migrating to cards or other channels.
The price question is the open one: banks have been advised that merchants must not pass the charge on, but in thin-margin trade a small cost can still quietly find its way into shelf prices.

What to watch — Watch whether the mix of above-₹2,000 transactions changes after the charge takes effect — whether merchants adjust prices, or customers start splitting payments into smaller amounts.

The story does not establish how much revenue this will actually generate, exactly which merchants fall inside the exemption, or how the no-pass-through rule will be enforced.

Deep dive

Research brief · 8 facts · 4 dates · exam-ready

The brief

Context

India's Unified Payments Interface (UPI), which completed 10 years this year, has so far run without any Merchant Discount Rate (MDR) — the fee merchants pay to banks and payment companies for processing a digital transaction. The government has now introduced a 0.4% MDR on merchant UPI transactions above ₹2,000, with UPI merchant charges beginning October 15. Person-to-person transfers stay free regardless of amount, merchant payments up to ₹2,000 stay free, small merchants are exempt, and customers are not to be charged. Industry leaders including PhonePe's Sameer Nigam and MobiKwik's Upasana Taku have welcomed the move as necessary to cover rising infrastructure costs.

Key facts

A 0.4% Merchant Discount Rate (MDR) will apply to merchant UPI transactions above ₹2,000; payments up to ₹2,000 and all person-to-person transfers remain free.
For transactions of ₹75,000 or more, the MDR is capped at ₹300 per transaction.
PhonePe founder and CEO Sameer Nigam said 70–80 crore UPI transactions take place every day in India.
Nigam said India was the only country among more than 200 countries with digital payment systems where UPI transactions carried no MDR.
Nigam said about 60 lakh merchants already pay MDR on RuPay credit cards, Visa and Mastercard transactions.
Credit card MDR typically ranges from 1.5% to 2.5% (Taku cited 1.6–1.8%), against 0.4% for UPI — among the lowest globally, per Nigam.
MobiKwik co-founder Upasana Taku said merchants with monthly sales of around ₹1 lakh remain exempted; the charge targets large, high-volume merchants.
The government clarified on Tuesday that customers will not pay MDR, and banks have been advised to ensure merchants do not pass the cost on to customers.

Timeline

2025 (year of the story)UPI completes 10 years, with digital payments having scaled massively across India, per Upasana Taku.
Before the decisionPhonePe says it consistently raised the MDR issue with the government and the RBI.
Tuesday (as reported)Government clarifies that P2P transfers remain free at any amount and merchant payments up to ₹2,000 stay free; customers will not pay MDR.
October 15UPI merchant charges begin, with NPCI saying the zero-fee era had to end.

Who has a stake

Consumers — UPI remains free for them; the government says customers will not pay MDR and banks must ensure merchants do not pass it on.
Large merchants (e.g. airlines, e-commerce, malls) — Will pay 0.4% MDR on UPI payments above ₹2,000, capped at ₹300 for transactions of ₹75,000 or more.
Small merchants — Exempted from MDR; Taku says those with monthly sales around ₹1 lakh remain outside the charge.
Payment companies (PhonePe, MobiKwik) — New revenue stream to recover operational costs and reinvest in expanding the UPI ecosystem.
Banks — Have borne rising costs of maintaining UPI infrastructure; MDR revenue is expected to support them.
Government and RBI / NPCI — Must balance UPI's sustainability with mass adoption; NPCI says the zero-fee era had to end.

Why it matters

UPI's zero-cost model drove mass adoption but left banks and payment firms funding infrastructure without a direct revenue stream, raising questions about long-term sustainability. A calibrated 0.4% MDR limited to large merchants and higher-value payments tries to fund the network while shielding consumers and small businesses. How well the ring-fencing holds — especially the instruction that merchants not pass costs to customers — will shape trust in India's largest retail payment system.

UPSC angle

Prelims pointers

MDR (Merchant Discount Rate) is the fee a merchant pays for processing a digital payment; new UPI MDR is 0.4% on merchant transactions above ₹2,000.
MDR cap: ₹300 per transaction for UPI payments of ₹75,000 or more.
UPI person-to-person transfers remain free irrespective of amount; merchant payments up to ₹2,000 also free.
UPI merchant charges begin October 15; NPCI operates UPI and said the zero-fee era had to end.
Credit card MDR in India typically 1.5%–2.5%, far above the 0.4% UPI rate.
PhonePe CEO cited 70–80 crore UPI transactions per day and 60 lakh merchants already paying card MDR.

Mains framing

The introduction of a 0.4% MDR on high-value UPI merchant transactions marks a shift from India's decade-long zero-fee digital payments model. The cause, as articulated by industry, is a cost-revenue mismatch: UPI's explosive growth (70–80 crore transactions daily) has raised infrastructure maintenance costs that banks and payment companies bore without direct fee income, making India, per PhonePe's Sameer Nigam, the only one among 200-plus countries with digital payments where UPI carried no MDR. The design attempts to be progressive — exempting P2P transfers entirely, sparing payments up to ₹2,000, exempting small merchants (around ₹1 lakh monthly sales, per MobiKwik's Upasana Taku), and capping MDR at ₹300 for transactions of ₹75,000 or more — so the burden falls on large, high-volume merchants who already pay 1.5–2.5% on cards. Implications include improved viability and reinvestment capacity for the payments industry, but also risks: merchants may attempt to pass costs to consumers despite banks being advised otherwise, and any perception that UPI is no longer free could dent adoption. The way forward lies in strict monitoring of cost pass-through, clear consumer communication, transparent thresholds for who counts as a "small merchant", and periodic review of whether MDR revenue is actually being reinvested in network capacity and reach.

Key terms

MDR (Merchant Discount Rate): The fee a merchant pays to banks/payment providers for processing a digital transaction; set at 0.4% for UPI merchant payments above ₹2,000.
UPI (Unified Payments Interface): India's real-time retail payments system, which completed 10 years this year and drove mass adoption of digital payments.
NPCI: The body that operates UPI; it said the zero-fee era had to end as merchant charges begin October 15.
P2P transaction: A person-to-person UPI transfer, which remains completely free regardless of the amount transferred.
MDR cap: Upper limit on the fee — ₹300 per transaction for UPI merchant payments of ₹75,000 or more.

Practice questions

Critically examine whether introducing MDR on high-value UPI merchant transactions strikes the right balance between financial sustainability of payment infrastructure and universal digital payment adoption.
The zero-MDR regime made UPI unique globally but created a cost-revenue mismatch for banks and payment firms. Discuss the design safeguards in the new 0.4% MDR framework and the risks that remain.
How can regulators ensure that MDR costs on large merchants are not passed on to consumers, and what would be the consequences if such pass-through occurs?

Grounded only in the source report — figures and dates are the source's, not inferred.

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