India’s introduction of a 0.4% merchant discount rate on high-value UPI transactions may prompt consumers and merchants to shift towards cash and cards, potentially impacting the country’s expanding digital payments ecosystem, according to a recent survey.
LocalCircles has said India’s new merchant fee on higher-value UPI payments could weigh on the country’s fast-growing digital payments system, with consumer responses suggesting some shoppers may switch away from the platform once charges begin on 15 October. According to the group’s chief executive, Sachin Taparia, the proposed 0.4% merchant discount rate on person-to-merchant payments above ₹2,000 could trim monthly UPI value by about 10% and volumes by 4% if the cost is passed on by merchants.
The warning is based on a consumer survey released on 2 October that drew more than 67,000 responses from UPI users across 291 districts. LocalCircles said only 14% of respondents would keep using UPI for payments above ₹2,000 if they had to absorb the extra charge, while 27% said they would move to cash, 26% to credit cards and 14% to debit cards. In all, the group said 76% expected to shift larger payments to cards, cash or bank transfers if UPI became more expensive.
The new levy marks the first charge on UPI since the system’s launch and applies only to merchant payments above ₹2,000, with peer-to-peer transfers left untouched. The National Payments Corporation of India has said the fee will be capped at ₹300 for transactions of ₹75,000 or more, while some categories such as utilities and fuel will face a flat ₹5 fee on larger payments. Small merchants receiving up to ₹1 lakh a month through UPI QR codes are exempt.
Merchant sentiment appears no less cautious. An earlier LocalCircles survey of businesses found that 41% were unwilling to bear any MDR on UPI transactions above ₹2,000, while only 17% said they were prepared to absorb a charge of 0.4%. The government has insisted that consumers should not be the ones paying the fee, and Finance Minister Nirmala Sitharaman said on 22 September that the charge was not meant to be passed on to customers. Officials are also working with the Indian Banks’ Association on a system to monitor merchants and limit any transfer of the cost to shoppers.
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