Concerns are arising regarding the implementation of the Merchant Discount Rate (MDR) rule for UPI payments, which will take effect on October 15. Under the new system, an MDR rate of 0.4% will apply to sellers whose turnover exceeds 2000 rupees. Although the government has clearly stated that this charge should not be levied on the customer but should be covered by the seller themselves, questions arise about consumer behavior if shops start demanding an additional fee.
According to data from a recent LocalCircles survey, a significant portion of people may switch to alternative payment methods, such as cash, credit, or debit cards, if the seller requires the MDR to be paid for a transaction exceeding 2000 rupees.
In the survey conducted by LocalCircles among over 67,000 UPI users across 291 districts, people were asked what they would do if a seller requested the MDR commission for a payment exceeding 2000 rupees. The majority of respondents indicated a shift to other payment methods, including cash, credit, or debit cards, or abandoning the purchase.
Only 14% of survey participants stated that they would continue using UPI and cover the additional costs themselves. The remaining 76% reported that they would use a different payment method or postpone the purchase. Thus, three out of four respondents admitted that if the burden of MDR is placed on them, they will move away from UPI to cash or cards.
This data emerged shortly before the new MDR system comes into force. Previously, in a LocalCircles survey in August 2026, 53% of UPI users noted a willingness to switch to other payment methods if MDR was passed on to the buyer; of these, 27% chose credit cards, 14% chose debit cards, and 12% chose cash or bank transfer.
When making a payment of 5000 rupees, the MDR commission will be 20 rupees (0.4%). For a purchase of 50,000 rupees, the amount will increase to 200 rupees, and for 75,000 rupees—to 300 rupees, after which the maximum MDR limit will be 300 rupees. This means that the impact of the new rule will be most noticeable when purchasing expensive goods such as electronics, furniture, household items, restaurant services, or travel, rather than with daily payments of 100, 500, or 1500 rupees.
The other side of the issue is represented by a LocalCircles survey among 32,796 traders and shop owners. Only 17% of them are willing to bear the 0.4% MDR cost themselves. 41% stated they would not apply MDR at all, and 9% refuse to accept UPI altogether. Another 15% of entrepreneurs agreed to cover MDR only up to 0.04%. This indicates limited business readiness to absorb the 0.4% MDR cost.
Previously, a zero MDR system was in place for UPI sellers, meaning no extra charges upon receiving payment. Now, starting October 15, an MDR of 0.4% will be charged for P2M (person-to-merchant) transactions exceeding 2000 rupees. The maximum amount of this charge is capped at 300 rupees for transactions of 75,000 rupees and above. It is important to note that P2P (peer-to-peer) payments remain completely free. Furthermore, sellers receiving up to 100,000 rupees per month via QR are exempt from this system.
The Ministry of Finance emphasized that the MDR burden should not be shifted to the consumer, as it is not a tax or a fee for using UPI. Banks and relevant institutions have been instructed to ensure that sellers do not charge this cost to customers. For example, if a purchase costs 5000 rupees, the MDR will be 20 rupees, but according to the rules, the seller must not demand this amount separately.
The situation is significant because UPI is no longer limited to small payments. In August 2026, 24.51 billion transactions were made through UPI totaling approximately 29.82 trillion rupees. Of these, about 15.51 billion payments were directed to sellers amounting to 8.95 trillion rupees. Consequently, the introduction of MDR in large transactions will affect not only the small charge between the seller and the buyer but will also show how committed users will be to UPI when making large purchases.
