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New Merchant Discount Rate proposed on large UPI transactions
Why in News?
New Merchant Discount Rate proposed on large UPI transactions
A new Merchant Discount Rate has been proposed on specified P2M UPI transactions from October 15, 2026, ending UPI's largely MDR-free status.
Why it matters: general awareness
What you need to know
2 min read
A new Merchant Discount Rate (MDR) has been proposed on specified person-to-merchant (P2M) UPI transactions, to take effect from October 15, 2026.
MDR is the fee a merchant pays to their bank or payment service provider for processing a digital payment.
UPI transactions have so far been largely MDR-free to encourage adoption, so this proposed change marks a shift in how India's digital payments ecosystem is funded, particularly for larger merchant transactions.
Sources: Topper IAS editorial (PIB / The Hindu / Indian Express)
Key facts
Remember these
- UPI
- Merchant Discount Rate
- digital payments
- P2M transactions
Prelims · Mains
How the exam will ask it
Prelims
- UPI, Merchant Discount Rate, digital payments, P2M transactions
Mains
Use as an example in GA answers (GS Paper III - Economy: Digital Payments, Banking Regulation).
Quick recall
Answer before you reveal
Consider the following statements:
- The Merchant Discount Rate (MDR) is a subsidy the government pays to merchants for digital transactions.
- UPI transactions have historically been largely MDR-free, unlike many card transactions.
Which of the statements given above is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Show answer
Answer: B — 2 only is correct: UPI transactions have historically been largely MDR-free, unlike statement 1's claim that MDR is a government subsidy — MDR is actually a fee merchants pay for payment processing, and a new MDR on specified P2M UPI transactions is now proposed from October 15, 2026.
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