UPI Merchant Charges From October 15, 2026: What Shopify & D2C Brands Need to Know

From October 15, 2026, a new NPCI framework introduces a 0.4% Merchant Discount Rate (MDR) on person-to-merchant UPI transactions above ₹2,000, capped at ₹300 for transactions of ₹75,000 and above. Person-to-person transfers, payments up to ₹2,000, and small merchants receiving under ₹1 lakh a month via QR code stay exempt. For most D2C brands, this means a genuinely small new cost on prepaid orders above ₹2,000 not a reason to shift back toward COD, which carries far larger, well-documented margin risks of its own.

What changed with UPI from October 15, 2026

The government notified this change through a Gazette notification on September 14, 2026, following statutory amendments to the Payment and Settlement Systems Act, 2007 passed during Parliament's August 2026 Monsoon Session. NPCI issued its detailed circular the following day, September 15, 2026, ending the zero-MDR regime on UPI that had been in place since January 2020.

0.4% MDR on P2M UPI above ₹2,000

Eligible person-to-merchant UPI payments above ₹2,000 now carry a 0.4% Merchant Discount Rate, calculated on the full transaction value (not just the amount above ₹2,000).

₹300 per-transaction cap on MDR

The MDR is capped at ₹300 for any single transaction of ₹75,000 or above, so the fee stops scaling linearly past that point.

What stays free: P2P, small QR merchants, exempt categories

Person-to-person transfers remain free regardless of amount. Small merchants classified under NPCI's P2PM (Person-to-Person-Merchant) category receiving up to ₹1 lakh a month via QR code directly into their own account stay exempt even if a single payment exceeds ₹2,000. UPI AutoPay and mandate payments (subscriptions, loan EMIs, insurance premiums, utility bills) don't attract the standard MDR at all. Certain sectors railways, telecom, insurance, and fuel pay a flat ₹5 per transaction above ₹2,000 instead of the 0.4% rate, and capital markets transactions (mutual funds, securities, stockbroking) carry a separate 0.02% rate, also capped at ₹300.

Who is affected by the new UPI merchant charges

Standard D2C merchants with AOV above ₹2,000

A typical Shopify or D2C brand doesn't qualify for the small-merchant P2PM exemption once it's running as a registered business collecting through a payment gateway rather than a personal QR code so most D2C brands fall into the standard P2M category and will see MDR on any prepaid UPI order above ₹2,000.

Exemptions: P2P, P2M ≤₹2,000, small QR merchants (≤₹1L/month), specified categories

Orders at or below ₹2,000 stay free of MDR regardless of your business classification. If you're a very small operation still collecting UPI payments via a personal QR code rather than a merchant gateway, and monthly receipts stay under ₹1 lakh, you may still qualify for P2PM status though most growing D2C brands processing through Razorpay, Cashfree, or a similar gateway will not.

How payment gateways and PSPs will apply MDR

The MDR is deducted by the acquiring bank at the point of merchant settlement it comes off your payout automatically, not something you invoice or collect separately. NPCI's own FAQ explicitly states merchants are barred from passing this cost to customers as a surcharge or hidden fee, so this is a margin line, not a pricing line.

Impact of UPI MDR on D2C margins

Across NPCI's published examples, the calculation is straightforward: multiply the full transaction value by 0.4%, capped at ₹300.

How to model monthly MDR cost from your order mix

Pull your last month's prepaid UPI orders, filter to those above ₹2,000, and sum 0.4% of each (capping any individual order's fee at ₹300). This gives you your actual monthly MDR exposure a far more useful number than applying 0.4% to your total revenue, since orders under ₹2,000 and non-UPI payment methods aren't affected at all. Per NPCI's own data, roughly 96% of merchant transactions nationally are expected to fall below the threshold or into an exempt category so your real exposure is likely concentrated in a smaller share of higher-value orders than the headline rate suggests, even though that smaller share of transactions represents a larger share of total transaction value.

What D2C founders should not do after the UPI change

Do not pass MDR to customers (explicitly barred)

NPCI and the Finance Ministry have both stated merchants cannot add this as a surcharge or "convenience fee" at checkout. Beyond the compliance risk, doing so would reintroduce exactly the kind of checkout-cost surprise that already drives cart abandonment in India.

Do not panic-shift back to COD (RTO risk)

A 0.4% fee capped at ₹300 is a modest, predictable cost. Shifting volume back toward COD to avoid it trades a small, known cost for COD's well-documented RTO and failed-delivery risk, which typically costs far more per order than the MDR ever would. See how to reduce COD failures without hurting conversions for the scale of that tradeoff.

Do not remove UPI as a payment option

UPI remains the dominant digital payment method in India by a wide margin. Removing it to avoid a capped 0.4% fee would cost far more in lost conversions than the fee itself, since a large share of Indian shoppers expect and default to UPI at checkout.

How to protect margins without hurting conversion

Optimize payment mix: nudge high-risk COD to prepaid with smart incentives

The MDR changes the specific math slightly, but the underlying incentive is unchanged: prepaid orders remain more profitable than COD orders once RTO and logistics risk are factored in, even with a capped 0.4% fee included. A modest prepaid incentive that costs less than your average RTO loss per COD order is still a clear net win.

Use WhatsApp and email flows to confirm COD and promote prepaid for repeat buyers

A returning customer who's already received one order successfully is a much easier prepaid conversion than a first-time buyer how to reduce COD failures covers the trust curve behind this, and why targeting repeat buyers specifically for prepaid nudges tends to outperform blanket incentives.

Improve LTV so MDR becomes a smaller % of customer profit

A 0.4% fee matters far less against a customer who orders four times than against a single, thin-margin first order. Retention and repeat purchase work winbacks, replenishment, cross-sell dilutes this cost by increasing the profit each customer generates over time, rather than trying to avoid the fee directly.

Review AOV distribution and prepaid vs COD split before Oct 15

Understanding what share of your orders sit above ₹2,000 and what share are already prepaid tells you your actual exposure before the change takes effect, rather than reacting to a headline percentage that may not reflect your specific order mix.

Checklist for Shopify and D2C brands before October 15

Review AOV distribution - calculate what percentage of your orders exceed ₹2,000, since only those are affected

Check current prepaid vs. COD split - this determines how much of your volume the MDR actually touches

Model MDR cost per month at current volume - using the formula above, not a blanket percentage of total revenue

Set up automated COD confirmation and prepaid nudges - so the response to a small new cost is smarter targeting, not a reversal of your payment strategy

Frequently asked questions

Is UPI free for merchants after October 15, 2026?

No, not entirely merchants processing P2M UPI transactions above ₹2,000 (outside the exempt small-merchant and specified categories) now pay a 0.4% MDR, capped at ₹300 per transaction. UPI remains free for consumers and for person-to-person transfers regardless of amount.

Which UPI transactions will attract MDR?

Standard person-to-merchant transactions above ₹2,000, where the merchant doesn't qualify for the small-merchant (P2PM) exemption or an alternate flat-rate category. Transactions at or below ₹2,000, P2P transfers, AutoPay/mandate payments, and small QR merchants under ₹1 lakh/month in receipts are not subject to the standard rate.

Can merchants pass UPI MDR to customers?

No. NPCI and the Finance Ministry have explicitly stated merchants cannot add MDR as a surcharge, convenience fee, or hidden charge at checkout customers continue to pay only the displayed price.

Will small D2C brands be affected by UPI charges?

Most registered D2C brands processing payments through a gateway (rather than a personal UPI QR code) will fall under the standard P2M category and be affected on orders above ₹2,000, even if their overall volume is modest the small-merchant exemption is based on account classification and QR-based collection method, not simply business size.

How can D2C brands offset UPI MDR without raising prices?

Focus on reducing COD-related losses (which typically cost more per order than a capped 0.4% MDR ever would), improving repeat purchase rate so the fee represents a smaller share of total customer profit, and targeting prepaid incentives specifically at repeat buyers rather than applying a blanket discount that erodes margin further.

If you're already reviewing platform costs for October, this pairs directly with the WhatsApp Business API pricing change also taking effect around the same period worth modeling both together rather than separately, since they land in the same margin-review conversation. Turbodev, the Revenue Engine for Shopify Brands, runs COD confirmation and prepaid-nudge journeys automatically over WhatsApp the same infrastructure that helps offset a small new UPI cost is the infrastructure already reducing the much larger cost of COD failures and RTO.