Indian Digital Payments Glossary
Plain-English authoritative definitions for payment terminology, interchange mechanisms, and regulatory acronyms.
UPI
coreUnified Payments Interface
An instant real-time payment system developed by NPCI enabling inter-bank peer-to-peer and person-to-merchant transactions.
Launched in 2016 by the National Payments Corporation of India (NPCI) and regulated by the Reserve Bank of India (RBI), UPI facilitates instantaneous fund transfers through virtual payment addresses (VPAs) without disclosing bank account details.
MDR
merchantMerchant Discount Rate
The fee charged to a merchant by acquiring banks and payment aggregators for processing digital payment transactions.
MDR compensates the ecosystem (issuer bank, acquirer bank, switch network, payment gateway). Under Indian regulations, MDR is never levied on the paying consumer for UPI; it is an acquiring fee handled between the merchant and their financial service providers.
P2P
corePeer-to-Peer (Person-to-Person)
Direct fund transfers between two individual bank accounts or personal UPI handles.
P2P transactions represent non-commercial personal payments such as sharing expenses with friends, family allowances, or personal reimbursements. They are 100% free of consumer charges and MDR under Indian policy.
P2M
merchantPerson-to-Merchant
Payments made by an individual consumer to a registered business or merchant for goods or services.
P2M transactions take place in stores (via static/dynamic QR codes or soundboxes) or online checkouts. Transactions up to ₹2,000 carry zero MDR. Specified commercial transactions above ₹2,000 are subject to a 0.40% standard MDR capped at ₹300.
NPCI
regulatoryNational Payments Corporation of India
The umbrella organisation for operating retail payments and settlement systems in India.
An initiative of RBI and IBA under the Payment and Settlement Systems Act, 2007, NPCI manages national payment backbones including UPI, RuPay, IMPS, NACH, and Bharat BillPay (BBPS).
PSP
technicalPayment Service Provider
An entity (bank or authorized non-bank) that provides the digital interface connecting users and merchants to the UPI switch.
PSP banks operate UPI backends and sponsor Third Party Application Providers (TPAPs like Google Pay, PhonePe, Paytm, CRED) to offer consumer-facing UPI apps.
Interchange Fee
merchantInterchange Fee
The inter-bank fee paid between payment service providers to cover transaction handling and risk management.
Interchange is distributed among the issuing bank (account holding bank) and acquiring service providers. It is factored into the total MDR paid by merchants and is never billed directly to the consumer.
VPA
technicalVirtual Payment Address
A unique identifier (such as name@bank or phone@bank) used to route payments securely through UPI without sharing account numbers.
VPAs act as financial aliases. By using a VPA, users can receive and send money while keeping their IFSC codes and bank account numbers confidential.