Mumbai: Transactions on the Unified Payments Interface (UPI) platform dipped in September after the government announced the reintroduction of a merchant discount rate (MDR) on select transactions, with a sharper decline in the second half of the month pointing to some caution among customers and merchants ahead of the new charges.
The UPI platform processed 24.07 billion transactions in September, down 1.8% from August. The value of transactions fell 1.5% to ₹29.4 lakh crore, according to data from the National Payments Corporation of India (NPCI), which operates the UPI platform.
More importantly, NPCI's daily transaction data shows a dip in both volumes and value in the second half of the month, after the 15 September announcement that MDR would be reintroduced on select UPI transactions from 15 October.
Daily transaction volumes ranged between 792 million and 859 million in the first half of September, before falling to between 748 million and 810 million in the second half. The value of transactions similarly declined to between ₹73,615 crore and ₹99,645 crore, from ₹79,166 crore to ₹1.3 lakh crore in the first half — though the last day of the month was an outlier, with transactions worth ₹1.1 lakh crore.
Some of this decline reflects normal seasonal patterns rather than MDR-driven caution: UPI transactions typically slow in the latter half of any month, and volumes and values also tend to run lower in 30-day months compared with 31-day months. A decline beyond these historical patterns, however, could signal greater caution among users.
Reeju Datta, co-founder of payments gateway Cashfree Payments, said UPI payments are typically higher in the first half of the month as people receive their salaries and pay bills and installments. While September saw a sharper decline in the second half than in earlier months, the average daily transaction volume for the month was the highest ever at 802 million, with an average daily value of ₹97,013 crore.
Between January and August 2026, the number of daily transactions in the second half of the month was 3-5% lower than in the first half, according to Datta. The decline was 6% in September. The decline in the daily value of UPI payments in the second half of the month, by comparison, ranged between 10% and 19% during January-August; in September, it was 17%.
Knee-jerk reaction
The sharper-than-usual decline in the second half indicates some caution among merchants and customers, with some industry experts describing it as a knee-jerk reaction, given that the MDR will take effect only from 15 October. "We are seeing more conversations around the cost of higher-value UPI transactions, particularly from merchants with tighter margins," said Kunal Jhunjhunwala, founder of airpay, adding that there could be some moderation in October 2026, especially among high-value merchants.
“The announcement has prompted merchants to consider the cost of accepting higher-value UPI payments even before the new structure takes effect. There is also some confusion about which transactions will actually attract MDR,” said Jhunjhunwala. As merchants gain more clarity on the rules and how they apply to them, some of this initial concern may subside, he added.
October may be different
“September suggests some caution in the market, but October may be different because the new MDR structure takes effect midway through the month,” Jhunjhunwala said, adding that some categories may be affected, with merchants that have a larger share of transactions above ₹2,000 potentially seeing a bigger impact.
The finance ministry, on 15 September, reintroduced a 0.4% MDR on person-to-merchant (P2M) UPI transactions above ₹2,000, while capping total fees at ₹300.
Person-to-person (P2P) transactions, utility-bill payments, auto-debit transactions and mutual-fund subscriptions, as well as payments to small merchants receiving up to ₹1 lakh per month through UPI QR codes, have been exempt from the charge.
At an event on 24 September, NPCI chief executive officer Dilip Asbe said that any change causes disruption but that overall transaction volumes are expected to remain steady. However, he acknowledged that reintroducing MDR after six years without charges had been “difficult” and could “create some pain”, attributing the recent pushback from merchants and other ecosystem players to miscommunication and misinformation regarding the structure of MDR charges.
“Any post-15 October dip must be evaluated in context, as UPI volumes and value naturally contract during the second half of every month. If a dip exceeds the historical 3-5% volume or 10-19% value range, it would warrant concern; otherwise, it reflects standard fluctuations,” Cashfree Payments' Datta said. Festival-season spending is expected to support UPI transactions even after 15 October, he added, although the quantum of offers provided by online merchants could change.
Others said no significant impact is expected for online merchants. Even among offline merchants, UPI is expected to remain the main mode of payment as Indians have become accustomed to it, making the platform indispensable for merchants. Alternative payment methods such as cards or cash on delivery remain significantly more expensive than UPI, even with the MDR, they said.