FINTECH

NPCI delays UPI MDR timeline as fintechs await fee clarity

The payments regulator promised a quick post-festive update on transaction fees, but silence from the top leaves operators waiting on critical revenues.

By KaroStartup News Engine

What happened

Two days past Deepavali, the National Payments Corporation of India (NPCI) has yet to notify a fresh implementation date for the proposed Merchant Discount Rate (MDR) on UPI transactions.

The payments authority had originally scheduled a 0.4% MDR levy on select Person-to-Merchant (P2M) UPI transactions above Rs 2,000 to take effect on October 15. On October 13, its UPI and Services Steering Committee put the charge on hold, stating that "keeping in mind the festive season," the new fee would be implemented "immediately post Diwali at a date to be notified separately."

When asked whether an announcement was imminent, an NPCI spokesperson told reporters, "there is no announcement on this at the moment."

The initial deferment followed pushback from merchants, petrol pump dealers, and trade bodies. According to government sources, the Prime Minister's Office stepped in to delay the fee after strong appeals from traders concerned about margin pressure during the peak shopping season.

Why it matters

For payment processors, gateways, and point-of-sale (PoS) device makers, the delayed rollout leaves core revenue projections in limbo. Merchant acquirers have spent years processing UPI transactions at zero MDR under government mandates, absorbing operational costs while relying on device rentals or cross-selling financial products.

The introduction of a 0.4% fee on transactions over Rs 2,000 represents the first major direct monetisation lever for merchant UPI transactions. For payment gateways like Pine Labs, the fee could unlock between Rs 80 crore and Rs 230 crore in additional annual revenue. Without a confirmed implementation date from NPCI, acquirers cannot finalise commercial terms with merchants or lock in hardware pricing models for the coming fiscal quarters.

Pine Labs bets on MDR windfall and soundbox expansion

The scale of the financial impact was outlined by Pine Labs co-founder and Chief Executive Officer Amrish Rau during the company's Q2 FY27 earnings call. Rau confirmed that the proposed 0.4% MDR structure on transactions above Rs 2,000 would generate Rs 80-230 crore in top-line revenue annually for the company.

For perspective, Pine Labs reported an operating revenue of Rs 806.2 crore for Q2 FY27, while net profit grew sixfold year-on-year to Rs 39 crore.

To capitalise on the new fee regime, Pine Labs is changing its hardware strategy. The company plans to deploy 10 lakh soundboxes across India to capture small-ticket UPI transactions that it previously ignored.

Rau explained that while Pine Labs' PoS terminals process 75% to 77% of store volume via UPI, roughly 10% to 20% of store transactions routinely leak to standalone soundboxes placed on merchant counters by rival networks.

"Earlier, our approach was not to bother with it. As it is UPI, there is no monetisation out of it," Rau told analysts. With MDR on the horizon, the company now intends to capture those previously unmonetised transactions by placing its own soundboxes alongside existing PoS terminals.

Shift in point-of-sale business models

The introduction of UPI MDR is also forcing a structural shift in how payment processors charge merchants for hardware and terminal maintenance.

Historically, Pine Labs bought PoS devices and leased them to merchants for a flat monthly fee, typically around Rs 125 per month. However, merchant economics cannot sustain both fixed rental fees and transaction-based charges.

"Merchant cannot afford to be paying Rs 125 monthly rent on top of 40 basis points on every transaction," Rau said on the earnings call. "It is just price prohibitive for them. So we think that market going forward will have one of the two commercials attached to it."

The transition away from pure rental models is already under way. In Q1 FY27, Pine Labs disclosed that roughly 25% to 30% of its new terminal deployments required merchants to pay for hardware upfront rather than entering rental leases.

Merchant pushback and political pressure

The delay in rolling out the MDR highlights the ongoing tension between payment infrastructure providers and merchant lobbies.

When NPCI initially proposed the October 15 launch date, it met immediate resistance from petrol pump operators and trade organisations. Petrol dealers argued that paying MDR on high-value fuel purchases would erode their margins, which have been compressed by unrevised dealer commissions. Small retailers expressed concern that extra costs would force them to either absorb fees or pass them on to consumers, risking buyer pushback.

Praveen Khandelwal, founder and secretary-general of the Confederation of All India Traders (CAIT) and a Lok Sabha Member of Parliament for the Bharatiya Janata Party, publicly backed the PMO's decision to pause the rollout. Khandelwal stated that deferring the charge protected trader interests and preserved digital payment momentum during the critical festive shopping period.

Emerging revenue streams and agentic commerce

While waiting for regulatory clarity on UPI MDR, payments companies are expanding into alternative transaction channels and software services.

Pine Labs disclosed that its issuing platform—which powers prepaid cards, gift cards, loyalty rewards, and corporate expense cards—now generates Rs 100 crore in annual revenue. The platform recently expanded into digital entertainment and gaming, onboarding platforms including Roblox, Xbox, and Nintendo. The company also plans to launch a dedicated employee tax benefit card by late November or early December.

In the online gateway segment, Pine Labs has secured processing deals with India's top four quick commerce platforms, facilitating installment payments for high-value purchases such as consumer electronics and mobile devices. The gateway also handled transactions for Flipkart's Big Billion Days sale and signed a major consumer biller set to go live in Q3 FY27.

Looking further ahead, the firm is preparing for AI-driven transactions, known as agentic commerce. Although Pine Labs demonstrated its proprietary Pine Labs Payment Protocol (P3P) at the Global Fintech Fest 2026 to process purchases initiated by AI assistants such as Muse or Instinct, consumer adoption remains cautious.

Rau noted that consumers remain hesitant to share card details and bank account credentials with AI personal agents. To encourage ecosystem development, Pine Labs has open-sourced its AI agent framework under AgenticOrg and released security guardrails on grantex.dev. Internal engineering has also embraced the technology, with 89% of Pine Labs' code changes currently performed by AI agents.

What happens next

NPCI has not provided an updated timeline for when its Steering Committee will revisit the MDR rollout. Industry participants expect the regulator to hold further consultations with merchant bodies and government representatives before setting a new target date.

Until NPCI issues an official notification, payment aggregators must continue operating under the zero-MDR framework for standard UPI transactions, delaying anticipated revenue gains across the fintech sector.