Banks to scrutinise attempts to split UPI payments to avoid new ₹2,000 threshold charges

As India prepares to impose a 0.4% Merchant Discount Rate on transactions above ₹2,000, banks may tighten monitoring of segmented payments to prevent fee circumvention, potentially limiting flexible payment practices for consumers and merchants alike.

The prospect of a customer breaking a larger UPI bill into several smaller payments to stay under the proposed ₹2,000 threshold may appear to offer a neat workaround, but banks are likely to watch such activity closely. Under the Merchant Discount Rate framework announced for selected UPI person-to-merchant transactions, a 0.4% fee is set to apply from 15 October 2026 on payments above ₹2,000, while transactions up to that level, and all person-to-person transfers, will remain outside the charge. According to the National Payments Corporation of India’s framework as explained by legal and industry briefings, the fee is meant for merchants, not consumers, and is intended to support the costs of UPI infrastructure and security.

That means a ₹6,000 purchase split into three separate ₹2,000 transfers would, in principle, fall below the proposed charge on each individual payment if judged transaction by transaction. By contrast, a single ₹6,000 payment to a merchant would attract 0.4% MDR, or ₹24, under the new structure. But the arithmetic does not make the practice risk-free. Banks and payment systems already monitor repeated patterns, and several small transfers to the same merchant in quick succession could be flagged as unusual behaviour.

Adhil Shetty, chief executive of BankBazaar, said such patterns could trigger automated security checks because lenders and payment providers look for signs of fraud or account misuse. If a bank’s systems judge the activity to be suspicious, the result could be a temporary block on transactions or even a restriction on UPI access. Shetty also noted that banks can impose their own limits on the number of transactions allowed in a day, which means the practical scope for splitting payments may be narrower than the rulebook alone suggests.

Merchants, too, are free to set their own terms. The proposed MDR rules do not compel a shop or service provider to accept multiple smaller payments for a single bill, and businesses may prefer one payment for accounting, reconciliation, refund handling and fraud control. Prabhat Ranjan, senior director at Nexdigm, said payment methods should reflect the underlying commercial transaction rather than be chosen solely to work around MDR thresholds. In other words, the legal structure of the fee does not oblige a merchant to adapt its billing practices to a customer’s attempt to avoid charges.

One further point is important for users: MDR is not supposed to be passed on to the customer as an extra UPI fee. If a merchant tries to recover the charge directly from the buyer, the customer can complain through the UPI app or their bank. Mint has reported that the new fee is expected to be shared across the digital payments ecosystem, including banks, payment gateways and apps, but the consumer-facing part of the UPI model is meant to stay free. For now, the proposed ₹2,000 threshold is assessed per transaction, not by the total value of a purchase, though repeated attempts to divide payments could invite closer scrutiny if the practice becomes widespread.