{"id":27317,"date":"2026-07-09T10:44:48","date_gmt":"2026-07-09T05:14:48","guid":{"rendered":"https:\/\/razorpay.com\/blog\/?p=27317"},"modified":"2026-07-09T10:44:48","modified_gmt":"2026-07-09T05:14:48","slug":"upi-mdr-for-merchants-in-payment-gateway-explained","status":"publish","type":"post","link":"https:\/\/razorpay.com\/blog\/upi-mdr-for-merchants-in-payment-gateway-explained\/","title":{"rendered":"Understanding UPI MDR For Merchants: UPI MDR In Payment Gateway Explained"},"content":{"rendered":"<p>Every Indian merchant asks the same question when a settlement report lands short: &#8220;UPI is free, so why is my payment gateway charging me?&#8221; Standard bank-to-bank UPI carries zero MDR by law, yet your payment gateway can still charge a platform fee, and specific UPI-linked instruments still attract charges. This article decodes UPI MDR for merchants and reframes the cost conversation around total cost of ownership rather than the headline rate.<\/p>\n<div style=\"border-left: 4px solid #007BFF; background: #f0f8ff; padding: 25px; margin: 30px 0; border-radius: 8px; font-family: Arial, sans-serif; text-align: left;\">\n<h3 style=\"margin-top: 0; color: #007bff; font-size: 22px;\">Key Takeaways<\/h3>\n<ul style=\"margin: 15px 0; padding-left: 20px; color: #333; line-height: 1.6;\">\n<li>Standard bank-to-bank UPI (P2M) has carried zero MDR since January 2020.<\/li>\n<li>Zero MDR applies to the network layer, not the payment gateway layer. A platform fee is not MDR.<\/li>\n<li>RuPay credit card on UPI and wallet-funded UPI above Rs 2,000 can attract charges, but 99.9% of UPI transactions are not via PPIs.<\/li>\n<li>Total cost of ownership beats headline MDR: at roughly Rs 2.08L monthly GMV, a payment gateway with zero AMC outweighs a competitor&#8217;s lower transaction rate.<\/li>\n<li>As of July 2026, MDR-for-large-merchants remains a proposal, not enacted law.<\/li>\n<\/ul>\n<\/div>\n<h2>Is There MDR On UPI In 2026? The Short Answer<\/h2>\n<p>For standard UPI payments funded directly from a customer&#8217;s bank account, MDR is zero by government mandate, and has been since January 2020.<\/p>\n<p><strong>Standard bank-to-bank UPI:<\/strong> When a customer scans a QR code or pays through a UPI app from their bank account (P2M), the network MDR is 0%.<\/p>\n<p><strong>RuPay credit card on UPI:<\/strong> When the underlying instrument is a RuPay credit card, MDR can apply, particularly above the Rs 2,000 threshold.<\/p>\n<p><strong>PPI or wallet-funded UPI:<\/strong> When funded by a prepaid payment instrument above Rs 2,000, an interchange fee can apply. This affects a tiny fraction of volume, since <a href=\"https:\/\/www.medianama.com\/2023\/04\/223-explained-upi-interchange-fee-2\/\" rel=\"nofollow noopener\" target=\"_blank\">99.9% of UPI transactions are not done through PPIs<\/a>.<\/p>\n<div style=\"background: #f9fbff; border-left: 4px solid #007BFF; padding: 22px 25px; margin: 30px 0; border-radius: 8px; font-family: Arial, sans-serif; color: #333; line-height: 1.6;\">\n<h3 style=\"margin: 0 0 12px 0; color: #007bff; font-size: 20px; display: flex; align-items: center;\">Did You Know?<\/h3>\n<p style=\"margin: 0; font-size: 16px;\">UPI grew from just <a href=\"https:\/\/www.pib.gov.in\/PressReleasePage.aspx?PRID=2257087&amp;reg=3&amp;lang=1\" rel=\"nofollow noopener\" target=\"_blank\">2 crore transactions in FY 2016-17 to over 24,162 crore transactions in FY 2025-26<\/a>.<\/p>\n<\/div>\n<h2>What Zero MDR On UPI Actually Means<\/h2>\n<p>Zero MDR on UPI is a specific legal treatment, not a promise that accepting UPI costs a merchant nothing.<\/p>\n<h3>The Legal Basis Since January 2020<\/h3>\n<p>MDR was made zero for RuPay debit card and BHIM-UPI payments through amendments in Section 10A of the Payments and Settlement Systems Act, 2007 and Section 269SU of the Income-tax Act, 1961. The government&#8217;s <a href=\"https:\/\/www.pib.gov.in\/PressReleasePage.aspx?PRID=2114335&amp;reg=48&amp;lang=2\" rel=\"nofollow noopener\" target=\"_blank\">cashless India framework<\/a> established this rule.<\/p>\n<h3>What UPI MDR Used To Be Before Zero-MDR<\/h3>\n<p>Before the mandate, MDR of up to 0.30% applied for UPI P2M transactions. This historical <a href=\"https:\/\/www.pwc.in\/industries\/financial-services\/fintech\/payments\/analysis-of-charges-levied-on-digital-payments.html\" rel=\"nofollow noopener\" target=\"_blank\">analysis of charges levied on digital payments<\/a> matters because the 0.30% figure resurfaces in the current policy debate.<\/p>\n<h2>Why Your Payment Gateway Still Charges You On &#8220;Free UPI&#8221;<\/h2>\n<p>Zero MDR applies to the network layer. Your payment gateway operates at a separate layer and charges a platform fee for the infrastructure it provides.<\/p>\n<h3>MDR vs Platform Fee vs Interchange vs GST<\/h3>\n<table>\n<thead>\n<tr>\n<th>Charge type<\/th>\n<th>What it covers<\/th>\n<th>Who receives it<\/th>\n<th>Applies to standard UPI?<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Network MDR<\/td>\n<td>Moving money through the UPI rail<\/td>\n<td>Banks and NPCI<\/td>\n<td>No (0% by mandate)<\/td>\n<\/tr>\n<tr>\n<td>Platform fee<\/td>\n<td>Dashboard, reporting, reconciliation, security<\/td>\n<td>Payment gateway<\/td>\n<td>Yes, may apply<\/td>\n<\/tr>\n<tr>\n<td>Interchange<\/td>\n<td>Cost of PPI or credit-funded instruments<\/td>\n<td>Issuing bank<\/td>\n<td>Only above Rs 2,000<\/td>\n<\/tr>\n<tr>\n<td>GST<\/td>\n<td>Tax on the service fee<\/td>\n<td>Government<\/td>\n<td>On the fee, not the transaction<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The <a href=\"https:\/\/razorpay.com\/blog\/upi-charges-explained-mdr-vs-platform-fees\/\">difference between MDR and platform fees<\/a> is the most misunderstood point in UPI MDR for merchants. A platform fee is a technology service fee, not a network charge.<\/p>\n<h3>Why Zero Network MDR Does Not Mean Zero Acceptance Cost<\/h3>\n<p>A payment gateway advertising &#8220;free UPI&#8221; may recover costs through settlement delays, bundled plans, or added fees. A full breakdown of <a href=\"https:\/\/razorpay.com\/blog\/convenience-fee-tdr-mdr-platform-fee-amc-setup-fee-technology-fee-of-payment-gateway\/\">convenience fee, TDR, MDR, platform fee, AMC and setup fee<\/a> shows how many line items sit beneath a headline rate. Some payment gateways charge Rs 4,999 per year in AMC, adding Rs 416 monthly. At Rs 2 lakh monthly GMV, that overhead erases a 0.25 point lower transaction rate. A payment gateway with zero AMC and zero setup fee, such as <a href=\"https:\/\/razorpay.com\/blog\/razorpay-payment-gateway-pricing-explained\/\">Razorpay&#8217;s pricing structure<\/a>, avoids this drag.<\/p>\n<h2>When UPI Transactions Are Not Free For Merchants<\/h2>\n<p>There are specific exceptions where UPI-linked payments carry a charge. Both hinge on the underlying instrument and the Rs 2,000 threshold.<\/p>\n<h3>RuPay Credit Card On UPI Above Rs 2,000<\/h3>\n<p>A <a href=\"https:\/\/www.canarabank.bank.in\/documents\/d\/guest\/mdr-on-rupay-credit-card-on-upi-payments\" rel=\"nofollow noopener\" target=\"_blank\">Canara Bank merchant notice<\/a> states that with effect from 01 June 2026, MDR applies on RuPay credit card payments via UPI exceeding Rs 2,000. The rate typically ranges from around 1.1% to 2%. If a customer pays Rs 5,000 at 1.1% MDR, the merchant incurs Rs 55 and receives Rs 4,945. Only the merchant bears this. See the <a href=\"https:\/\/razorpay.com\/blog\/latest-innovations-on-turbo-upi-credit-cards-on-upi-and-more\/\">latest innovations on Turbo UPI, credit cards on UPI and more<\/a>.<\/p>\n<h3>PPI Or Wallet-Backed UPI Above Rs 2,000<\/h3>\n<p>An interchange fee of up to 1.1% can apply on UPI transactions exceeding Rs 2,000 when funded through PPIs. This affects a negligible share of volume.<\/p>\n<h3>Why These Are Exceptions, Not The Rule<\/h3>\n<p>For a broader view of <a href=\"https:\/\/razorpay.com\/learn\/upi-transaction-charges\/\">UPI transaction charges<\/a>, the rule is zero and the exceptions are narrow.<\/p>\n<div style=\"background: #f9fbff; border-left: 4px solid #007BFF; padding: 22px 25px; margin: 30px 0; border-radius: 8px; font-family: Arial, sans-serif; color: #333; line-height: 1.6;\">\n<h3 style=\"margin: 0 0 12px 0; color: #007bff; font-size: 20px; display: flex; align-items: center;\">Did You Know?<\/h3>\n<p style=\"margin: 0; font-size: 16px;\">In 2025, UPI processed <a href=\"https:\/\/www.pib.gov.in\/PressReleasePage.aspx?PRID=2257087&amp;reg=3&amp;lang=1\" rel=\"nofollow noopener\" target=\"_blank\">228.3 billion transactions worth Rs 299.7 lakh crore<\/a>.<\/p>\n<\/div>\n<h2>How Charges Appear In A Payment Gateway Settlement Report<\/h2>\n<table>\n<thead>\n<tr>\n<th>Scenario<\/th>\n<th>Gross amount<\/th>\n<th>Network MDR<\/th>\n<th>Interchange<\/th>\n<th>What lands (illustrative)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Bank-account UPI<\/td>\n<td>Rs 1,000<\/td>\n<td>Rs 0<\/td>\n<td>Rs 0<\/td>\n<td>Rs 1,000 minus platform fee + GST<\/td>\n<\/tr>\n<tr>\n<td>RuPay credit card on UPI<\/td>\n<td>Rs 5,000<\/td>\n<td>Rs 55<\/td>\n<td>In MDR<\/td>\n<td>Rs 4,945 minus platform fee + GST<\/td>\n<\/tr>\n<tr>\n<td>Wallet-funded UPI above Rs 2,000<\/td>\n<td>Rs 3,000<\/td>\n<td>Rs 0<\/td>\n<td>Up to Rs 33<\/td>\n<td>Rs 3,000 minus interchange minus fee<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>Identify each deduction by type. Understanding <a href=\"https:\/\/razorpay.com\/blog\/refunds-and-mdr-in-payment-gateways\/\">refunds and MDR in payment gateways<\/a> prevents reconciliation surprises.<\/p>\n<h2>Small Merchants Versus Large Merchants: What Changes<\/h2>\n<p>The Union Cabinet approved an incentive scheme for low-value BHIM-UPI P2M transactions for FY 2024-25 with an outlay of Rs 1,500 crore, covering P2M transactions up to Rs 2,000 at 0.15% per transaction. Large merchants receive zero MDR but no incentive, which makes them the focus of every free-payments cost model proposal.<\/p>\n<h2>Will MDR Return On UPI For Merchants?<\/h2>\n<p>As of July 2026, standard UPI P2M remains zero MDR. In 2025 the Finance Ministry rejected claims of an impending UPI MDR, calling the speculation false, baseless, and misleading. A Parliamentary Standing Committee report tabled in March 2026 called for a return of MDR on large merchants, and the Payments Council of India has urged a 0.30% MDR on large-merchant UPI and RuPay debit transactions. No binding RBI or CBDT notification exists.<\/p>\n<h2>How To Choose A Payment Gateway For UPI Beyond Just The Fee<\/h2>\n<p>Total cost of ownership, factoring in AMC, setup fees, and payment success rates, is the decisive metric.<\/p>\n<h3>Transparent Pricing Versus Hidden Recovery Models<\/h3>\n<p>A lower advertised rate often gets recovered through fixed overheads. Some payment gateways charge Rs 4,999 per year, adding Rs 416 per month regardless of volume. Understanding <a href=\"https:\/\/razorpay.com\/blog\/payment-gateway-pricing-impact-on-margins\/\">how payment gateway pricing eats into margins<\/a> reframes the comparison from rate to rupees.<\/p>\n<h3>Setup Fee, AMC, Settlement Delay, Monthly Minimums<\/h3>\n<p>At roughly Rs 2.08L monthly GMV, a payment gateway with zero AMC outweighs a competitor&#8217;s lower rate in absolute rupees. The <a href=\"https:\/\/razorpay.com\/blog\/low-cost-payment-gateway-in-india-the-complete-decision-guide\/\">low-cost payment gateway decision guide<\/a> walks through these tiers.<\/p>\n<h3>Why Success Rate Can Matter More Than The Headline Fee<\/h3>\n<p>An 8 point success rate difference (93% versus 85%) at Rs 2L monthly GMV equals Rs 16,000 in recovered revenue monthly. <a href=\"https:\/\/razorpay.com\/blog\/upi-success-rate-boosters\/\">UPI success rate boosters<\/a> and <a href=\"https:\/\/razorpay.com\/blog\/turbo-upi\/\">Turbo UPI<\/a> close this gap.<\/p>\n<h2>Razorpay Payment Gateway: The Highest ROI On Total Cost Of Ownership<\/h2>\n<p>The argument for <a href=\"https:\/\/razorpay.com\/upi\/\">Razorpay&#8217;s UPI for business<\/a> is that when AMC and success rate are factored in alongside the transaction rate, more money reaches the merchant&#8217;s bank account.<\/p>\n<table>\n<thead>\n<tr>\n<th>Factor<\/th>\n<th>Razorpay position<\/th>\n<th>Rupee impact for merchant<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Annual maintenance charge<\/td>\n<td>Zero AMC<\/td>\n<td>Saves up to Rs 4,999 per year<\/td>\n<\/tr>\n<tr>\n<td>Setup fee<\/td>\n<td>Zero setup fee<\/td>\n<td>No upfront onboarding cost<\/td>\n<\/tr>\n<tr>\n<td>Payment success rate<\/td>\n<td>Up to 95% across scenarios<\/td>\n<td>Recovers up to Rs 16,000 per month at Rs 2L GMV<\/td>\n<\/tr>\n<tr>\n<td>Turbo UPI<\/td>\n<td>Two-step in-app payment<\/td>\n<td>Reduces third-party app dependency<\/td>\n<\/tr>\n<tr>\n<td>Dynamic routing<\/td>\n<td>Routes for higher success<\/td>\n<td>More captured revenue<\/td>\n<\/tr>\n<tr>\n<td>Custom pricing<\/td>\n<td>Above Rs 5L monthly GMV<\/td>\n<td>Removes the rate ceiling for scaling merchants<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/razorpay.com\/learn\/what-is-mdr-psp-fee-switching-fee-interchange-fee\/\">Razorpay charges zero annual maintenance<\/a> and zero setup fee, and a higher success rate retains more revenue independent of the advertised fee.<\/p>\n<h2>Frequently Asked Questions<\/h2>\n<h3>Is UPI really free for merchants?<\/h3>\n<p>Standard bank-to-bank UPI (P2M) carries zero network MDR since January 2020. However, a merchant may still pay a platform fee, and RuPay credit card or PPI-funded UPI above Rs 2,000 can attract charges.<\/p>\n<h3>Why is my payment gateway charging me if UPI MDR is zero?<\/h3>\n<p>Zero MDR applies to the network layer, not the payment gateway layer. The fee is a platform or technology service fee covering the dashboard, reconciliation, and security.<\/p>\n<h3>Does the customer ever pay MDR on UPI?<\/h3>\n<p>No. For RuPay credit card on UPI above Rs 2,000, MDR is charged only to the merchant.<\/p>\n<h3>What is the MDR on a RuPay credit card via UPI?<\/h3>\n<p>For payments above Rs 2,000, MDR typically ranges from around 1.1% to 2%, varying by merchant category and issuer.<\/p>\n<h3>Are wallet UPI payments chargeable for merchants?<\/h3>\n<p>An interchange fee of up to 1.1% can apply above Rs 2,000, but 99.9% of UPI transactions are not routed through PPIs.<\/p>\n<h3>Will UPI MDR return for large merchants?<\/h3>\n<p>As of July 2026, this is a proposal, not law. Small merchants would remain exempt under every current proposal.<\/p>\n<h3>Is a platform fee the same as MDR?<\/h3>\n<p>No. MDR is paid to banks and NPCI. A platform fee is charged by the payment gateway for its technology and services.<\/p>\n<h2>Final Takeaway<\/h2>\n<p>UPI can be legally zero-MDR at the network layer and still cost a merchant money at the payment gateway layer. Understanding UPI MDR for merchants means separating the zero network MDR on standard UPI, the instrument-specific charges above Rs 2,000, and the platform fee. A lower advertised rate loses its edge once a Rs 4,999 AMC or an 8 point lower success rate enters the math. Measure by rupees that reach your bank account, not by the number on the fee schedule.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Every Indian merchant asks the same question when a settlement report lands short: &#8220;UPI is free, so why is my payment gateway charging me?&#8221; Standard bank-to-bank UPI carries zero MDR by law, yet your payment gateway can still charge a platform fee, and specific UPI-linked instruments still attract charges. This article decodes UPI MDR for<\/p>\n","protected":false},"author":149,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[498],"tags":[],"class_list":{"0":"post-27317","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-upi"},"_links":{"self":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/27317","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/users\/149"}],"replies":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/comments?post=27317"}],"version-history":[{"count":1,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/27317\/revisions"}],"predecessor-version":[{"id":27318,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/27317\/revisions\/27318"}],"wp:attachment":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/media?parent=27317"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/categories?post=27317"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/tags?post=27317"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}