NPCI introduces a structured process for resolving UPI Merchant Category Code misclassification disputes; prescribes claim eligibility, response timelines, documentation and financial settlement requirements

The National Payments Corporation of India (“NPCI”) has issued a circular introducing a structured process for the resolution of disputes arising from the misclassification of Merchant Category Codes (“MCC”) in Unified Payments Interface (“UPI”) transactions. The framework, establishes a mechanism for participants to raise, respond to and resolve claims relating to differences in interchange fees resulting from inaccurate MCC classification. The process applies to domestic UPI transactions for which interchange fees are applicable, excluding RuPay Credit Card transactions on UPI. It establishes the responsibilities of Remitter Banks, Payee Payment Service Providers (“PSPs”), Acquirers and other concerned participants, together with prescribed timelines, documentary requirements, dispute resolution procedures and corrective measures. The circular states that the framework comes into effect from the date of its issuance, i.e. 14^th October 2026.

The circular provides a standardised mechanism for resolving interchange fee disputes arising from MCC misclassification and places greater emphasis on timely responses, transaction-level evidence, appropriate merchant classification and corrective action by the concerned UPI participants.

Key Highlights:

1. Claims may be raised for domestic UPI transactions involving applicable interchange fees, provided the transactions were processed and settled within the 90 calendar days preceding the Claim Reference Date. RuPay Credit Card transactions on UPI are excluded from the process.
2. The aggregate amount claimed must be at least ₹10,00,000, calculated separately for each Acquirer and Remitter Bank combination. A single claim may cover multiple transactions and multiple merchants, provided the MCC remains the same. However, the framework provides exceptions where the Remitter Bank favours a particular MCC and the relevant Payee PSP/Acquirer combination, or where a Payee PSP/Acquirer proactively rectifies the differential interchange fee with the Remitter Bank and makes the corresponding payment.
3. A Remitter Bank must complete an internal investigation, submit a clear interchange-impact summary with supporting documents, identify the cause of the claim and provide a separate response for each MCC and merchant combination. Claims must not include duplicate transactions, transactions already decided or received by the Panel for Resolution of Disputes (“PRD”), or transactions for which a credit adjustment, return or refund has been raised.
4. The Initiating Party must first raise the claim with the Responding Party, accompanied by the prescribed supporting documents. The Responding Party must respond within 23 calendar days, followed by a 7-calendar-day grace period. If no response is received by the end of the 30-day period, the claim is deemed accepted, provided the Responding Party was duly notified. The claim may also be accepted or rejected partially, with reasons and supporting documents required for rejection.
5. If the claim is rejected at the pre-compliance stage, the Initiating Party may file a formal compliance within 15 calendar days of the rejection, including reasons for escalation. The Responding Party may accept the claim or the Initiating Party may withdraw it within the subsequent 15-calendar-day period. If neither action occurs, the claim automatically proceeds to the PRD after the expiry of that period.
6. The PRD comprises four unrelated UPI member representatives, including at least two representatives from Payee PSPs/Acquirers, with NPCI acting as Chair. The Panel reviews claims based on the documents submitted and may request additional evidence where necessary. It aims to resolve claims within 90 calendar days from the Panel Reference Date. Its decision is final and binding for NPCI settlement and adjustment purposes, without prejudice to a party’s right to appeal available under applicable law.
7. A fee of Rs. 3,000, plus applicable taxes, is payable by the party that accepts or withdraws a claim at the compliance stage. An additional Panel review fee of Rs. 3,000, plus applicable taxes, is chargeable to the non-prevailing party, in addition to the initial fee. No fee is payable at the time of referring or raising a claim for pre-compliance.
8. The Initiating Party must submit an investigation memo containing transaction details, the applied and expected MCC, merchant name, UPI ID/VPA, interchange received, claimed adjustment amount and relevant supporting evidence. The Responding Party must submit a rebuttal memo for each MCC and merchant combination, supported by invoices, service descriptions, delivery challans, payment receipts, merchant onboarding documents, GST records or other relevant evidence establishing that the assigned MCC correctly reflects the merchant’s primary business activity.
9. The framework excludes on-us transactions where the Remitter Bank and Payee PSP/Acquirer are the same, transactions involving reversals, credit adjustments, returns or refunds that have been processed before the claim is raised, transactions already resolved by the PRD, and transaction types unrelated to MCC misclassification. Parties must identify excluded or previously resolved transactions and provide the relevant details when submitting a claim.
10. Where MCC misclassification is established, the Payee PSP/Acquirer must make the required differential interchange fee adjustment to the respective Remitter Bank and correct the MCC assignment for future transactions. Accepted or deemed-accepted claims and claims decided by the PRD must be processed through the applicable settlement mechanism, with settlement reporting reflected in Net Settlement (“NTSL”) or Daily Settlement (“DSR”), as applicable.

Source: NPCI