0.4% UPI Charge Pushed Back? NPCI Weighs Deferring MDR Rollout After Festival Season

The National Payments Corporation of India (NPCI) and the Union Ministry of Finance are considering postponing the implementation of a 0.4% Merchant Discount Rate (MDR) on high-value UPI transactions to January 2027, following intense representations from fintech operators and merchant associations.

The processing charge, fixed last month by the UPI Steering Committee, was scheduled to take effect on October 15, 2026, for person-to-merchant payments exceeding ₹2,000. Under the proposed fee structure, a ₹2,000 transaction incurs an ₹8 fee, while a ₹10,000 payment attracts a ₹40 charge, capped at a maximum fee of ₹300 for high-value purchases up to ₹75,000.

Festive Season Margins and Consumer Sentiment

Retail bodies and payment aggregators petitioned NPCI to suspend the levy until after the peak festive sales cycle, warning that introducing new operational fees during high-volume shopping months would strain merchant margins and risk dampening consumer spending.

Ministry of Finance officials engaged in consultation with NPCI noted similar concerns, highlighting that businesses might pass the added transaction costs directly to buyers, depressing retail activity at a time when inflationary pressures are already testing household purchasing power. The news of the potential delay triggered an immediate sell-off in fintech stocks on Dalal Street, with shares of One97 Communications (Paytm) dropping 10 per cent to hit its lower circuit, while MobiKwik and Pine Labs fell up to 8% over deferred revenue projections.

Categorisation Framework Triggers Operational Confusion

Beyond timing concerns, the push for deferral stems from widespread operational confusion over how variable MDR rates apply across distinct commercial categories. Unlike standardized card payment structures, the UPI directive outlines varying charges for utility bill payments, loan repayments, and capital market transactions.

Stockbroking firms and financial intermediaries submitted strong objections to the Securities and Exchange Board of India (SEBI) and NPCI regarding wallet top-ups. Broking entities argue that customer funds transferred to trading accounts represent zero-revenue pass-through transactions and should not incur commercial merchant fees.

Technical Roadblocks in Automated Repayments

Further technical friction involves automated loan repayments where auto-debit mandates fail due to insufficient account balances. When borrowers subsequently execute manual repayments through web portals, payment gateways automatically code the transactions as standard financial institution payments, triggering the 0.4% MDR charge.

Although NPCI clarified that such manual loan settlements should attract a flat ₹5 fee rather than the percentage-based levy, banks and payment service providers requested additional runway to update core banking systems and ensure accurate transaction tagging. NPCI is expected to release its final directive on the revised implementation timeline within two days.