Will UPI payments via Google Pay, PhonePe, Paytm get costlier? What the new MDR means for users
A 0.4% merchant discount rate on some large UPI payments is meant to be paid by the merchant, not the customer, and RBI expects little effect on volumes.
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Users of apps such as Google Pay, PhonePe and Paytm for daily purchases, online payments and other transactions are asking one question: will sending money through UPI now become costlier? It is therefore important to understand what the new UPI arrangement actually is.
A merchant discount rate (MDR) was to apply to some large UPI transactions from October 15. However, it is now being said that the charge will come into force from January 1, 2027. This has led many to wonder whether digital payments will become more expensive.
MDR is a fee levied on merchants who accept digital payments. It does not mean that a customer will have to pay extra for every UPI payment. What matters is how it will affect users of Google Pay, PhonePe and Paytm.
According to the report, an MDR of 0.4% will apply from October 15 to certain specified merchant UPI transactions above Rs 2,000, capped at Rs 300. The merchant will have to pay this charge. Under this arrangement, collecting any additional charge from customers will not be permitted. The new system also does not provide for charging customers a direct platform fee for UPI payments made through apps such as Google Pay, PhonePe and Paytm.
Meanwhile, UPI transactions have also been found to have declined. According to data from the National Payments Corporation of India (NPCI), UPI recorded a total of 2,407 crore transactions in September, against 2,450 crore in August. This is a fall of about 1.8%.
The value of transactions has also dipped. The total value of UPI transactions was Rs 29.82 lakh crore in August and came down to Rs 29.37 lakh crore in September, a fall of roughly 1.5% in total transaction value.
Industry experts have offered a different explanation for the dip. They say the difference appears because August has 31 days and September has 30. In their view, the average daily number of transactions has not fallen.
According to Reserve Bank of India (RBI) Governor Sanjay Malhotra, a nominal charge in the form of MDR is not expected to have a significant effect on the number of UPI transactions. He also said there are currently no signs of any significant decline in the number of transactions.
