The Indian government’s move to introduce a merchant discount rate on large UPI transactions is facing opposition from traders and fuel retailers, raising concerns over reduced acceptance and increased reliance on cash payments amid fears of economic disruption and impacts on digital payment growth.
India’s new UPI merchant fee regime is already triggering resistance from traders and fuel retailers, even as the authorities say the change is meant to make the payments system more commercially durable. Under the revised framework, merchants will pay a merchant discount rate of 0.4% on person-to-merchant UPI transactions above ₹2,000, with a cap of ₹300 per transaction. Consumers are not meant to face a charge, and smaller everyday payments remain exempt, but the announcement has prompted fears that some sellers may simply stop accepting large UPI payments. According to Mint, petrol pump dealers in Mumbai have warned that they may refuse UPI payments above ₹2,000 from 15 October unless fuel retailers are exempted from the fee.
The pushback has spread beyond fuel stations. The Retailers Association of India said the move could push small merchants towards cash, with chief executive Kumar Rajagopalan telling Reuters that traders on thin margins may think twice before accepting UPI. Reuters also reported that the Clothing Manufacturers Association of India has criticised the timing of the change, while the All India Consumer Products Distributors Federation has asked Prime Minister Narendra Modi to keep zero-MDR UPI in place for merchants. In Ghaziabad, some shopkeepers have already displayed notices saying they will not accept UPI payments as a form of protest.
The new charges apply to selected merchant payments rather than ordinary peer-to-peer transfers, but the policy still affects a wide range of sectors. Mint said jewellery, consumer electronics, apparel, premium retail, travel bookings, insurance, stockbroking and petrol pumps are among the businesses most exposed to transactions above the threshold. The Economic Times reported that the levy is intended to help fund payment infrastructure, cybersecurity, innovation and customer service, ending more than six years of zero-MDR on UPI, which has been a key feature of India’s digital payments boom since January 2020.
The debate has also reached the securities industry. Zerodha founder Nithin Kamath warned on social media that the change could affect the economics of stock broking, since payments to brokers, mutual funds and securities dealers fall under the capital-markets category. Under the new rules, those transactions will attract a 0.02% fee, capped at ₹300, a lower rate than the levy on most other merchant UPI payments. The broader dispute now centres on whether merchants will absorb the cost, pass it on to customers or turn back to cash, undermining one of the government’s flagship digital payment channels.
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