India’s recent move to impose a 0.4% merchant discount rate on high-value UPI transactions risks reconfiguring the competitive landscape between traditional credit cards and RuPay cards, potentially favouring the latter in everyday spending and challenging existing acceptance advantages.
India’s move to impose a 0.4% merchant discount rate on certain UPI payments could give credit cards some breathing room at the top end of the market, even as RuPay cards deepen their role in everyday spending. The new charge applies only to person-to-merchant transactions above Rs 2,000, and that matters because higher-value purchases, though a small share of transaction count, account for most of the value flowing through the system.
According to the National Payments Corporation of India, the levy takes effect on October 15 and is designed to support the long-term economics of the UPI network. Small merchants that collect less than Rs 1 lakh a month through UPI are exempt, while the fee is capped at Rs 300 for transactions of Rs 75,000 and above. That structure means the new cost will be felt most in larger-ticket retail payments, where cards still have an advantage in acceptance, rewards and credit availability.
The change could also sharpen the contrast between regular credit cards and RuPay credit cards linked to UPI. Those RuPay cards allow users to draw on credit while paying through the QR-based UPI system, but they sit outside the new direct-account merchant fee. India has been seeing rapid growth in card issuance, with credit cards outstanding rising to 122.86 million in July, even as average spending per card fell 13.5% to Rs 3,460, suggesting that RuPay-linked UPI use is helping push cards into smaller purchases while traditional cards remain more relevant for larger ones.
Merchant sentiment, however, points to a tough transition. A LocalCircles survey reported that only 17% of merchants are willing to absorb the new charge, while 41% said they would not bear any MDR at all. That raises the prospect that the fee may be passed on to shoppers in some cases, which could limit the competitiveness of UPI for higher-value spending and give card networks a modest advantage if merchants and customers begin weighing payment costs more carefully.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
