Zerodha CEO Nithin Kamath on Wednesday supported government’s decision to introduce Merchant Discount Rate (MDR) on person to merchant UPI payments, stressing that it was probably required as the digital payment system gained widespread adoption.
“I think MDR on UPI was probably inevitable at some point, especially given how widespread UPI adoption has become. It could also lead to more competition, instead of just three apps accounting for more than 95% of the market,” Kamath wrote on a post on social media platform X
He however said the proposed MDR structure may not be suitable for certain use cases, particularly investing and broking.
“That being said, there are some use cases, like investing and broking, where the proposed MDR structure doesn’t really make sense. The problem with broking is that there is no guarantee that money transferred to a broker will actually result in a transaction. As brokers, we can’t force a customer to trade after transferring money. And if we can’t pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue,” he added.
Finance Ministry, earlier today, clarified that claims linking the new UPI Merchant Discount Rate (MDR) framework to external pressure or foreign influence are completely false. It further stressed that India’s digital payments decisions are made independently.
The Finance ministry posted on social media platform X, “Some claims suggest the change is due to foreign influence. This is false. India’s UPI policy decisions are made independently, with the clear goal of building a self-sustaining, inclusive, and affordable digital payments ecosystem.”
It said, Since its launch in 2016, UPI has grown into the world’s largest real-time interoperable payment system — entirely on India’s own terms. UPI processed 24.5 billion transactions in August 2026 alone. To keep this system self-sustainable, secure and innovative, a small fee on high-value merchant transactions helps fund– Better infrastructure and cybersecurity; Support for small merchants in Tier III–VI towns and rural areas
and Awareness and incentives to expand UPI adoption.
“The new framework ensures resources from higher-value merchant transactions are reinvested to support small businesses and strengthen digital payments across the country,” said Finance ministry.
New UPI rules from 15 October: What remains free, what will be charged?
What Will Remain Free
1. All Person-to-Person Transactions
All person-to-person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred. No transaction fee, platform fee or other charge may be imposed on individuals for sending or receiving money through UPI. Therefore, UPI transactions accounting for 70% of the total transaction value will remain completely outside the MDR framework.
2. Merchant Payments Up to Rs 2,000
All person-to-merchant (P2M) transactions up to Rs 2,000 will remain free of MDR. Customers will not be required to pay any charge when making such payments through UPI.
3. Payments Received by Small Merchants
Small merchants including street vendors receiving up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on all transactions. This provision will protect street vendors, neighbourhood shops and other small businesses from additional payment costs.
What Will Attract MDR
1. Merchant Transactions Above Rs 2,000
A nominal MDR of 0.4% will apply only to P2M transactions above Rs 2,000. The MDR will be shared among payment ecosystem participants, including banks, payment service providers and UPI application providers. For transactions of Rs 75,000 and above, the MDR will be capped at ₹300 per transaction.
2. Transactions in Essential Sectors
Transactions above Rs 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5 per transaction. The flat charge will provide cost certainty for critical public services and businesses operating on narrow margins.
3. Capital Market Transactions
Payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at Rs 300 per transaction. The lower rate is intended to support continued retail participation in formal financial markets.
Customers Will Not Pay MDR
MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.
Banks have been advised to ensure that merchants do not pass MDR charges on to customers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges.
Individuals will continue to have unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions.
Daily transaction limits prescribed by banks and NPCI, generally ranging from Rs 1 lakh to Rs 5 lakh depending on the transaction category, are security and risk-management safeguards. They are not charging thresholds.
