Proposed UPI Charges Threaten Digital Adoption Among Street Vendors, Survey Reveals

The proposed merchant discount rate (MDR) on Unified Payments Interface (UPI) could lead to reduced acceptance for UPI among vendors, according to a new study by the Centre for Analytical Finance at the Indian School of Business (ISB). Vendors could switch back to cash rather than reduce cash usage. The study has also evaluated the impact of digital payment policies on micro-retailers. 

The study, titled UPI Utilisation and MDR Awareness Among Street Vendors, was conducted between September 24 and October 10, 2026, covering 14 states and Union Territories and 64 urban local bodies.

Digital Payment Trends Across Cities

The study found that digital payment usage had grown substantially among informal sellers. Findings showed that 67 per cent of surveyed street vendors currently accepted UPI. The adoption rate was high in urban areas, reaching 82 per cent in Tier I cities, and 66 per cent and 64 per cent in Tier II and Tier III cities, respectively.

Around 46 per cent (46.20 per cent) of Tier I merchants used their personal UPI accounts to receive payments, whereas nearly 43 per cent (42.90 per cent) of Tier III vendors used business QR codes.

The survey found that 25.30 per cent of UPI-accepting vendors reported that they had received one transaction over Rs 2,000 recently. According to the survey, such transactions made up only 7 per cent of an average vendor’s daily UPI transaction volume.

MDR Framework And Awareness Gaps

The proposed MDR charges were announced in September 2026, under which a 0.40 per cent charge was proposed to be levied on transactions exceeding Rs 2,000. It exempted merchants generating up to Rs 1 lakh monthly through QR. 

Although the National Payments Corporation of India (NPCI) announced postponing its implementation on October 13, 2026 to a date after Diwali, the final date has not been announced yet. However, the survey suggests that merchant awareness regarding the charges and implementation remains limited despite its postponement.

It revealed that only 52 per cent of surveyed vendors had heard of the charge (MDR), adding that knowledge of the policy varied across cities. In Tier I cities, 66 per cent of vendors were aware, whereas in Tier II, it was 55 per cent, while in Tier III, it was only 47 per cent.

Misconceptions And Threatened Digital Adoption

The survey also highlighted the confusion related to exemption among vendors, with 48 per cent in Tier I, 46 per cent in Tier II, and 33 per cent in Tier III believing that the charges would apply to them directly. It said that such misunderstanding could push small vendors to avoid using UPI. The survey reported that 45-53 per cent of vendors said they would reduce UPI acceptance if MDR was enforced.

Around 30 per cent of vendors in Tier I, 14 per cent in Tier II, and 19 per cent in Tier III also planned to pass on the cost to customers, the survey further said.

Notably, while NPCI is yet to announce the MDR implementation date, a few vendors reported supplier surcharges on UPI payments in the 10 days preceding the survey. The survey found that those vendors facing the hikes in supplier fees were 1.90 times more likely to pass on the charges to the retail customers.

The survey revealed that the proposed charges threaten to push the wholesale transactions (typically more than Rs 2,000 transactions) back into cash. The study found that 70 per cent of the street vendors paid their suppliers more than Rs 2,000 for buying inventory, and 100 per cent of these vendors stated that they would switch to cash payments if suppliers imposed an additional fee on using UPI.

Overall, the charges on such transactions (exceeding Rs 2,000) would likely increase cash usage, and the move would only reverse digital progress, especially among vendor and supplier transactions.