NPCI Defers UPI Merchant Discount Rate Until After Diwali

The National Payments Corporation of India postponed the introduction of a merchant discount rate on selected Unified Payments Interface transactions. The fee, set at 0.4 percent on person-to-merchant payments above Rs 2,000, was scheduled to begin on 15 October. NPCI said on Tuesday that implementation will now occur immediately after Diwali at a date to be announced separately.

The UPI and Services Steering Committee took the decision on 13 October. The statement cited the festive season. Diwali falls on 8 November this year. Merchant associations had asked for a delay, a higher exemption threshold for small traders, and an exemption for merchant-to-merchant transfers.

Under the September framework, payments of Rs 2,000 or less and all person-to-person transfers remain free. Qualifying small merchants are also exempt. Merchants cannot pass the fee to customers. The rate is capped at Rs 300 per transaction for amounts of Rs 75,000 and above. A flat Rs 5 rate applies to certain categories.

NPCI has said the income from the fee will support merchant expansion, payment infrastructure, and fraud prevention. Banks and payment companies that had budgeted for the revenue from mid-October will now wait until after the festival. The exact start date has not been fixed.

The All India Mobile Retailers Association and the All India Consumer Products Distributors Federation were among the groups that sought the deferment. Their representations reached NPCI in the days before the original deadline. The steering committee met on Tuesday and accepted the request for a festive pause.

UPI handled more than 10 billion transactions in recent months. The bulk of those are low-value or person-to-person. The subset above Rs 2,000 that will eventually attract the fee is smaller but still material for banks that process large merchant volumes. The delay preserves the current zero-fee environment through the peak shopping period.

Retailers had argued that introducing a cost in the middle of the festival season would complicate pricing and settlement. Many small shops operate on thin margins during Diwali and rely on UPI for speed. The associations also asked that the small-merchant exemption be widened so that more traders remain outside the fee.

NPCI has not altered the structure of the fee itself. The 0.4 percent rate, the Rs 2,000 threshold, and the exemptions remain as announced in September. Only the start date has moved. Stakeholders will receive the new date through the usual circulars once the committee sets it.

The postponement follows a pattern in which NPCI has adjusted timelines after industry feedback. Earlier changes to UPI rules have also been phased or delayed when operational concerns arose. The current decision keeps the system unchanged for the next three to four weeks.

Banks that had prepared systems for the 15 October start can now stand down those changes. Payment apps and merchant aggregators will continue to settle at zero MDR for the covered transactions until the later date. Customers will see no difference in the charges they pay.

The festive period typically sees a sharp rise in both the number and the value of UPI payments. Clothing, electronics, gold, and household goods move in large volumes. Keeping the fee off during that window avoids any friction at the point of sale while the new rule is still being explained to merchants.

NPCI has not published an estimate of the revenue that will be deferred. The amount depends on the volume of eligible transactions between 15 October and the eventual start date. Industry analysts had expected the fee to generate several hundred crore rupees annually once fully in force. The short delay trims only a fraction of that total.

The steering committee will meet again after Diwali to confirm the implementation date. Until then the September framework remains on paper only. Merchants, banks, and payment companies will continue under the existing zero-fee rules for all UPI transactions.