India to impose merchant discount rate on UPI payments above 2,000 rupees

India's digital payments landscape is set to shift as a new merchant discount rate takes effect on UPI transactions from October 15. Payments made by individuals to merchants or shopkeepers exceeding 2,000 rupees will now attract a 0.4 percent charge, marking a significant change to the nation's cashless transaction framework that has gained rapid adoption over recent years.

The move will apply specifically to person-to-merchant transactions, while person-to-person transfers between individuals will continue to remain free of charge regardless of the amount transferred. This distinction aims to preserve the utility of UPI for peer-to-peer remittances, which form a substantial portion of overall digital payment activity in the country.

Data indicates that person-to-person transfers account for approximately 37 percent of all UPI transactions by volume and 70 percent by value, underscoring their significance in India's digital payments ecosystem. The introduction of merchant discount rates on higher-value person-to-merchant transactions represents an effort to create a sustainable revenue model for payment service providers while maintaining accessibility for smaller transactions and individual-to-individual transfers.

The charge structure will potentially impact consumer behavior and merchant practices, particularly for retailers and small business owners who have increasingly relied on UPI as a low-cost payment collection method in recent years.