Shares of fintech firms rebounded sharply from Tuesday's lows following NPCI's announcement to defer UPI MDR implementation. Paytm shares jumped 6.6% from the day's low of ₹1,571 on the National Stock Exchange (NSE) and were trading down less than 1% at ₹1,673.90 as of 1:45 PM. Pine Labs jumped 6.8% from its day's low and was trading 1.25% higher at ₹165 per share, while Mobikwik turned positive for the day after languishing in the red, rising 0.6% to ₹242 from its day's low of ₹230.41. According to The Times of India, retailers heaved a sigh of relief as the move will spare them the need to reconfigure billing and accounting systems, besides briefing store staff at the point of peak footfalls. Deferment avoids this and gives the trade time to prepare, with the festive quarter being the single most important trading window for apparel retail. As noted by The Hindu BusinessLine, the MDR, which was to be applicable from October 15, will now come into force after Diwali, providing relief to fintech companies that had been preparing for the new charges.
The National Payments Corporation of India (NPCI) has officially deferred the implementation of UPI Merchant Discount Rate (MDR) charges until after Diwali 2026, marking a significant shift from the previously scheduled 15 October 2026 launch. As reported by The Hindu BusinessLine, NPCI announced the deferment on October 13, stating that the UPI and Services Steering Committee decided that, keeping in mind the festive season, Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions shall be implemented immediately after Diwali, on a date to be notified separately. The proposed 0.4% merchant discount rate with a cap of ₹300 was originally scheduled to begin on 15 October, with merchants paying ₹12 on a ₹3,000 purchase at the standard rate. The deferment addresses merchant concerns about the timing of implementing new charges during the peak shopping period, with Diwali falling on November 8, Sunday this year. The original plan allowed merchants to be charged MDR on person-to-merchant transactions exceeding ₹2,000, while person-to-person payments were to remain free. According to The Hindu BusinessLine, the revised rollout was expected to be pushed to January 2027 from October 15, but the announcement states the implementation will be immediately after Diwali. However, NPCI has not yet announced an exact implementation date or timeline, with further details awaited.
The Supreme Court has declined to put the proposed UPI Merchant Discount Rate (MDR) on hold while seeking responses to a legal challenge, as reported by Moneycontrol. Advocate Anjan Datta's petition challenges the finance ministry's 14 September notification, which prohibits banks and payment-system providers from charging payers or recipients using RuPay debit cards or UPI transactions up to ₹2,000. Justice Joymalya Bagchi questioned whether MDR was a tax or a fee, with the Centre stating it was neither, prompting the court to seek an explanation of its character and legal authority. Additional solicitor general N. Venkataraman described it as cost-sharing within the payments ecosystem, emphasizing that the government is "not taking a rupee of this." The court has given respondents four weeks to reply and its refusal to grant a stay is not a final ruling upholding MDR. The matter is next scheduled to be heard on November 2, 2026, less than a week before Diwali, as reported by The Hindu BusinessLine.
The postponement comes amid significant industry criticism and political opposition to the MDR framework. NPCI had announced the introduction of a 0.4% MDR on UPI transactions above ₹2,000, along with a sector-wise rate framework, on September 15, drawing criticism from industry stakeholders including Zerodha founder Nithin Kamath and the All India Mobile Retailers Association. Leader of the Opposition Rahul Gandhi and several other political leaders also opposed it, as reported by The Hindu BusinessLine. After reports that the rollout could be delayed, Finance Minister Nirmala Sitharaman clarified after the recently concluded GST Council meeting that NPCI and the Steering Committee would decide. Santosh Katariya, president of the Clothing Manufacturers Association of India (CMAI), emphasized that "UPI has become the default payment mode at the store counter, and any change in the cost of accepting it directly affects checkout practices, reconciliation and consumer experience." NPCI, the government and the Reserve Bank of India (RBI) maintained that the levy would have a limited impact on users, as it applied only to high-value transactions and involved a relatively small charge.
Under the revised UPI MDR framework, select merchant categories including railways, telecom services, insurance and fuel will attract a flat MDR of ₹5 on UPI transactions above ₹2,000. For large merchant payments above ₹2,000, a charge of 0.4% will apply, capped at ₹300, according to the earlier framework outlined by NPCI. The revised structure will affect only a small share of UPI transactions, with around 4% of merchant transactions expected to fall within the framework, while more than 95% of person-to-merchant (P2M) transactions will remain outside it. Small merchants operating under the person-to-person merchant (P2PM) model will continue to pay zero MDR. Individual users will not face a monthly quota or cap on free UPI transactions, with payments within the applicable free framework continuing without an MDR charge. Banks have been advised to ensure that merchants do not pass MDR costs on to customers, meaning consumers are not expected to face additional charges for UPI payments under the revised framework. However, MDR is a fee associated with processing merchant payments, and the latest announcement concerns only select person-to-merchant (P2M) UPI transactions, not all UPI payments. Customers and businesses should await detailed guidelines and further official announcements to understand which transactions will attract charges and how the changes will be implemented.
The new structure will set aside 5% of total MDR collections for a dedicated fund to support UPI acceptance among small merchants. MDR revenue will be shared among participants across the UPI ecosystem and is expected to support the expansion of the payment system, cybersecurity and innovation. The revised rates are also expected to remain lower than charges applicable to cards and digital wallets. The decision delays the planned October 15 rollout of charges on certain merchant transactions, giving businesses and payment service providers more time before the revised framework comes into effect. The MDR framework was approved and notified by NPCI on September 15, with a 0.4% charge for eligible person-to-merchant (P2M) UPI transactions above ₹2,000, capped at ₹300 for transactions of ₹75,000 and above. The framework was to take effect from October 15, giving banks, payment aggregators and other ecosystem participants a month to make operational changes.
UPI recorded a record average of 802 million transactions a day in September, with an average daily transaction value of ₹97,913 crore, according to Business Standard reports. Transaction volume rose 22.6% from a year earlier to 24.07 billion in September, from 19.63 billion a year earlier, while the total value of transactions increased 18% to ₹29.37 trillion from ₹24.89 trillion. The deferment of MDR implementation comes as UPI continues to demonstrate strong growth momentum, with the quarter from October to December carrying about 78 days of MDR compared to the roughly 53 days after November 8 when implementation begins. As noted by Business Standard, the days surrended are the busiest of the year, representing approximately one-third of the quarter's incremental MDR revenue concentrated in the highest-value weeks. The decision to defer implementation was taken keeping the festive season in mind, particularly Diwali, which is an important period for retailers and businesses as consumer spending and merchant transactions typically increase. Introducing charges on select merchant transactions during this period could have affected how businesses prepare for payments and manage transaction-related costs.
