The dedicated fund financed by UPI's merchant discount rate will subsidise digital payment infrastructure in Tier 3 to Tier 6 centres, including the north-eastern states, Jammu and Kashmir and Ladakh. In Tier 1 and Tier 2 centres the fund also covers any notified scheme from the central government, such as PM SVANidhi and PM Vishwakarma. The scope appears in frequently asked questions on the merchant discount rate published by the Department of Financial Services on 15 September 2026.
The proposed fund will extend financial assistance to acquiring banks and payment aggregators for merchant onboarding. It will also pay incentives for UPI transactions originating from small merchants, particularly in rural areas and tier III centres and beyond. The detailed operational framework will be finalised in consultation with the Reserve Bank of India within the next three months, and that exercise will map out capital allocation criteria, regional priorities and merchant incentive structures.
A merchant discount rate of 0.4 percent applies to person-to-merchant UPI transactions above Rs 2,000 from 15 October 2026. Receiving a payment above Rs 2,000 imposes no charge on a small merchant operating under exempted tiers such as P2PM.
The charge starts on 15 October, before the rules governing the fund it feeds are settled.