RBI Unveils New UPI Framework: Zero MDR for Small Merchants

The Reserve Bank of India has rolled out a comprehensive framework governing UPI charges and merchant fees, establishing clearer rules for digital payment participants across the country. Under the updated regulations, small merchants receiving monthly transactions up to Rs 1 lakh through UPI QR code payments will continue to benefit from zero merchant discount rate (MDR), ensuring cost-free payment acceptance for this segment.

The framework addresses concerns from merchants and payment service providers regarding transaction costs and operational fees. By maintaining zero MDR for qualifying merchants, the central bank aims to encourage digital payment adoption among small traders and neighbourhood retailers who form the backbone of India's retail economy. The threshold of Rs 1 lakh monthly turnover has been specifically designed to support street vendors, small shops, and neighbourhood establishments.

Payment service operators and banks will need to adhere to the revised guidelines when processing UPI transactions. The framework provides transparency regarding fee structures and ensures that charges, where applicable, are reasonable and standardized across the industry. This standardization is expected to reduce confusion among merchants and users regarding hidden costs in digital transactions.

The new rules underscore the government and RBI's commitment to promoting a cashless economy while protecting the interests of small traders who have been instrumental in expanding digital payment infrastructure to tier-2 and tier-3 cities. Industry participants have been given adequate time to align their operations with the updated framework, ensuring a smooth transition to the new fee structure.