Summary of this article
UPI transaction value may drop 10% if 0.4% MDR is introduced.
Most consumers would switch to cash, cards, or alternative methods instead.
Finance Ministry states consumers shouldn't bear MDR; merchants are resisting fees.
Unified Payments Interface (UPI) has become ubiquitous with digital payments in India, with transactions ranging from everyday purchases to larger payments. However, from October 15, 2026, a 0.40 per cent Merchant Discount Rate (MDR) will apply to specified UPI transactions above Rs 2,000 made to merchants.
A LocalCircles survey of more than 67,000 UPI users across 291 districts found that only 14 per cent would continue using UPI and bear the additional amount if the MDR is passed on to them. The remaining 86 per cent said they would switch to alternate modes or options with no or lower fees. The report estimates UPI transaction value could fall 10 per cent and volumes by 4 per cent after the introduction of MDR.
Consumer Payment Choices After MDR
In a question with 31,206 responses, 27 per cent of consumers said they would pay in cash if a merchant asked them to pay an additional amount for a UPI transaction above Rs 2,000. Another 26 per cent said they would switch to a credit card, while 14 per cent would use a debit card.
A further 9 per cent said they would ask the merchant for another payment option without an additional charge, while 4 per cent would use bank transfers through NEFT or IMPS. Another 2 per cent said they would avoid or delay the purchase, while 4 per cent could not say what they would do.
41 Per Cent Merchants Won’t Bear Any MDR
The merchant survey received 32,796 responses. While 41 per cent said they would not bear any MDR and 9 per cent said they did not accept UPI payments, 15 per cent of merchants said they would bear a maximum MDR of 0.04 per cent.
The survey found that 35 per cent of merchants would bear an MDR of 0.1 per cent or more, while 25 per cent would bear 0.25 per cent or more. Only 17 per cent said they would be willing to bear an MDR of 0.4 per cent or more on UPI payments above Rs 2,000.
What Is UPI MDR?
MDR, or Merchant Discount Rate, is a charge paid by merchants to participants involved in processing certain digital payment transactions. Under the new framework, the 0.4 per cent MDR will apply to specified person-to-merchant UPI transactions above Rs 2,000 from October 15.
The Finance Ministry has said that consumers should not be charged for making UPI payments and that merchants should not pass the MDR on to customers. Banks have also been advised to ensure that the charge is not recovered from consumers.
