UPI Faces A Major Change From October 15
India’s Unified Payments Interface is set for a major change from October 15, when a 0.4% Merchant Discount Rate will apply to certain person-to-merchant UPI payments above Rs 2,000.
While the new charge is officially imposed on merchants and not consumers, a new survey suggests that the change could significantly influence how Indians make larger digital payments.
76% Users May Move Away From UPI
A LocalCircles survey found that 76% of UPI users could shift to other payment methods for purchases above Rs 2,000 if merchants pass the additional cost on to them.
Among those surveyed, 26% said they would prefer credit cards, while another 26% would return to cash. Debit cards were preferred by 13%, while 11% said they would use bank transfers, NEFT or IMPS.
Only 20% said UPI would remain their preferred method for larger purchases if an additional cost were imposed.
Only 14% Willing To Pay Extra
The survey also asked users what they would do if a merchant specifically demanded an additional fee for a UPI payment above Rs 2,000.
Only 14% said they would pay the additional amount and continue using UPI.
Another 27% said they would switch to cash, while 26% would use a credit card. Around 14% would use debit cards and 4% would opt for bank transfers.
This suggests that even though the official MDR is a merchant-side charge, any attempt to recover it from customers could change payment behaviour quickly.
What Is The New UPI MDR?
The new framework introduces a 0.4% MDR on eligible person-to-merchant UPI payments above Rs 2,000.
The charge is capped at Rs 300 for transactions of Rs 75,000 or more.
For example, a Rs 5,000 transaction would attract an MDR of Rs 20, while a Rs 50,000 transaction would result in an MDR of Rs 200.
Importantly, the government has said consumers should not be charged this amount.
Small Payments And Person-To-Person Transfers Remain Free
The new MDR will not apply to all UPI transactions.
Payments of up to Rs 2,000 remain outside the new charge structure. Person-to-person UPI transfers also remain free.
Small merchants receiving up to Rs 1 lakh per month through UPI QR payments are also exempt under the framework.
The government has said around 96% of merchant transactions will not be affected.
Merchants Are Also Reluctant To Pay
The challenge is that many merchants themselves do not want to absorb the new cost.
A separate survey of more than 32,000 businesses found that only 17% were willing to bear a 0.4% MDR on eligible UPI transactions.
Around 41% said they would not bear any MDR.
This creates uncertainty over how merchants will respond once the new framework becomes operational.
UPI Handles Billions Of Transactions
The potential impact is significant because UPI has become India’s dominant digital payment platform.
In August 2026, UPI processed 24.51 billion transactions worth Rs 29.82 lakh crore.
Merchant payments alone accounted for 15.51 billion transactions worth Rs 8.95 lakh crore. Transactions above Rs 2,000 represented 67% of the value of those merchant payments.
Therefore, although the new MDR affects a relatively smaller portion of transactions by volume, it applies to a significant share of the money flowing through merchant payments.
Government Says Customers Should Not Be Charged
The government has repeatedly maintained that the MDR should not be passed on to consumers.
Banks have been asked to ensure merchants do not transfer the cost to customers, while UPI apps cannot impose additional platform fees or hidden charges.
The bigger question now is whether merchants will follow the framework or find other ways to recover their higher payment-processing costs.
If merchants start demanding additional money for larger UPI payments, the survey suggests consumers could quickly return to cash and cards for high-value purchases.
Summary
From October 15, a 0.4% MDR will apply to eligible UPI merchant payments above Rs 2,000, although the government says consumers should not bear the charge. A LocalCircles survey suggests 76% of users could shift larger payments to cash, credit cards, debit cards or bank transfers if merchants pass on the cost, potentially challenging UPI’s dominance in high-value transactions.
