New Delhi, Sept. 19 -- The 0.4% Merchant Discount Rate (MDR) on UPI transactions above Rs.2,000 marks a shift for a payment system that has remained largely free while seeing rapid adoption across the country.

Person-to-person (P2P) transactions will remain free, as will person-to-merchant (P2M) payments up to Rs.2,000 and payments received by small merchants with monthly UPI receipts of up to Rs.1 lakh. The change will create a new revenue pool for the payments ecosystem, with dominant UPI apps PhonePe and Google Pay-together accounting for roughly 80% of transactions-positioned to capture a significant share of it.

The scale of the opportunity is significant. Finance ministry data shows that only about 4% of person-to-merchant transac...