Merchant discount rate
In one line: The merchant discount rate is the fee a merchant pays for accepting a digital payment, shared among the banks, payment service providers and network that process it.
How it works
When a customer pays by card or UPI, the merchant receives the amount less the MDR. The fee pays for processing, interchange between banks and network switching. It is charged on the merchant side and is not added to the customer's bill, though merchants may pass it on through prices.
Why it is in the news
UPI has been at zero MDR since 1 January 2020. NPCI's framework sets a 0.4% MDR on eligible merchant payments above ₹2,000, capped at ₹300, with a flat ₹5 for specified essential-sector payments above ₹2,000. Its start, set for 15 October 2026, has been deferred to after Diwali.
Where to go next
- Payment and Settlement Systems Act, 2007
- Unified Payments Interface
Merchant discount rate in the news
- NPCI defers 0.4% UPI merchant fee, due on 15 October, until after Diwali 14 October 2026
What the fee is and who actually pays it.
- Centre and banks to settle UPI subsidy once merchant charges begin 26 September 2026
The fee behind every card swipe and QR scan
Previous-year questions on this
- 2026 · GS3 · 10 marks What do you mean by Digital Rupee? In this context, explain the working and progress of India's Central Bank Digital Currency (CBDC).
- 2026 · GS3 · 10 marks Examine the view that financial inclusion is an integral part of social and economic inclusion in a country like India. Also throw light on the usefulness of the R.B.I.'s Financial Inclusion Index.
- 2022 · GS3 · 10 marks Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.
- 2016 · GS3 · 12.5 marks Pradhan Mantri Jan Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poor section of the Indian society?…
- 2017 · Prelims Which of the following is the most likely consequence of implementing the 'Unified Payments Interface (UPI)'? (a) Mobile wallets will not be necessary for online payments. (b) Digital currency will…