NEW DELHI: India’s UPI system is about to enter a different phase. From October 15, selected merchant payments above ₹2,000 will carry a Merchant Discount Rate (MDR), creating a revenue stream for participants in the payment ecosystem after years of operating without a merchant-side charge.
Now, payment aggregators are looking to secure a larger portion of that money.
According to a Financial Express report, payment aggregators are negotiating with their sponsor banks for a bigger share of the acquiring bank’s portion of the MDR. The discussions are reportedly centred on aggregators retaining around 50% to 80% of the bank’s share.
The reason is straightforward. Under the new framework, the standard MDR on specified UPI person-to-merchant transactions above ₹2,000 will be 0.4%. Of this, 0.12 percentage point goes to the acquiring bank, while the payment aggregator’s share has to come from that portion rather than being separately assigned.
Take a ₹10,000 eligible UPI payment. At 0.4%, the total MDR would be ₹40. The acquiring bank’s share would be ₹12. Based on the range being discussed between aggregators and banks, an aggregator could receive roughly ₹6 to ₹9.60 from that transaction, according to the Financial Express report.
For payment companies processing large volumes, even small differences in the revenue share can become meaningful when applied across millions of transactions.
Why payment aggregators are negotiating
Payment aggregators sit between merchants, banks and payment networks, providing much of the technology required to process digital payments. Their bargaining position is likely to depend on factors such as the number of merchants they bring to a bank, transaction volumes and the technology services they provide.
The Financial Express report said larger aggregators with substantial merchant networks and deeper technology relationships with banks could have greater negotiating power. Companies that also provide payment-processing technology to their sponsor banks may have an advantage when commercial terms are discussed.
This creates a new commercial layer around UPI. The payment system itself is unchanged for consumers, but companies supporting the merchant side now have a direct financial interest in how the new MDR revenue is divided.
Most UPI users will not pay the charge
The introduction of MDR should not be confused with a general UPI transaction fee.
The government has clarified that person-to-person UPI payments will remain free. Merchant transactions up to ₹2,000 will also remain outside the MDR framework. Small merchants covered under the specified P2PM category and receiving up to ₹1 lakh a month through UPI QR payments will continue to get zero MDR. The government estimates that about 96% of P2M transactions will remain unaffected.
For eligible merchant transactions above ₹2,000, the MDR will be 0.4%, with a maximum charge of ₹300 for transactions of ₹75,000 and above. Certain sectors, including railways, telecom, insurance, fuel and agricultural inputs, will instead have a flat ₹5 charge for qualifying transactions.
This distinction matters because the new revenue model is aimed at the merchant side of the payment system, not at charging consumers every time they use UPI.
A bigger question for the UPI ecosystem
The negotiations between payment aggregators and banks also raise a broader issue about who should earn from UPI’s growing merchant business.
Business Standard had earlier reported that payment aggregators were seeking a fixed and direct share of UPI MDR instead of depending on sponsor banks to pass on part of their revenue.
Some payment aggregators are also considering seeking direct membership as UPI acquiring entities. Under the present arrangement, an acquiring bank provides the settlement account and connectivity to NPCI, while payment aggregators handle much of the merchant-facing technology and infrastructure. Direct access, if approved, could change that relationship and potentially allow qualifying firms to retain the acquiring-bank share directly.
Such a change would require regulatory approval, so it remains a longer-term possibility rather than an immediate change to the UPI system.
For now, the focus is on October 15 and the commercial arrangements being negotiated before the new MDR framework begins. Banks and payment aggregators will have to settle how the available revenue is divided, while merchants will begin accounting for MDR on eligible higher-value transactions.
For India’s digital payments industry, this is more than the introduction of a new fee. It marks a shift towards giving the UPI ecosystem a defined revenue model, and the negotiations now taking place could influence how banks, fintech companies and payment aggregators share that revenue in the years ahead.
