Merchants Cannot Pass 0.4% UPI MDR to Customers, NPCI Tells Supreme Court

The National Payments Corporation of India (NPCI) has told the Supreme Court that merchants cannot pass on Merchant Discount Rate (MDR) charges to customers under the revised Unified Payments Interface (UPI) pricing framework.

In an affidavit filed on November 3, NPCI said UPI application providers are also prohibited from imposing platform fees or other charges on users for making payments through the digital platform.

The submission came after the Supreme Court, on September 28, sought responses from the Centre and other stakeholders on a petition challenging the introduction of MDR on specified person-to-merchant (P2M) UPI transactions exceeding Rs 2,000.

Defending the revised framework, NPCI said the MDR of up to 0.4 per cent would apply to only around 4 per cent of merchant transactions, while nearly 96 per cent would remain unaffected. Transactions below Rs 2,000 and those involving small merchants covered under the zero-MDR framework would continue to be free.

The corporation said the prohibition on passing MDR charges to customers was a mandatory direction backed by contractual enforcement mechanisms. Violations could invite action against banks, Payment System Providers and Third Party Application Providers, including termination of their UPI membership and facilities.

NPCI also rejected concerns that the revised charges could indirectly increase prices for consumers, arguing that the limited applicability of MDR left little scope for merchants to revise prices across their entire customer base. It said a dedicated fund had been proposed to encourage UPI adoption among merchants with annual turnover of up to Rs 20 lakh.

Explaining the rationale, NPCI said the zero-MDR regime had created a gap between the operational costs of maintaining the UPI ecosystem and the revenue available to sustain it. It cited growing investments in payment infrastructure, cybersecurity, fraud prevention and customer services.

The revised framework, effective October 15, ends nearly six years of fully free UPI payments for specified high-value merchant transactions. Person-to-person transfers and eligible small-merchant transactions will continue to attract zero MDR.