Traders Advised to Carry Cash Due to Plans to Introduce MDR on UPI

In Media Pradesh, traders held a 'Day without UPI' on Wednesday, September 23rd, to express disagreement with the proposed Merchant Discount Rate (MDR) of 0.4 percent for certain UPI transactions exceeding 2000 rupees. Protests took various forms in cities such as Indore, Bhopal, Jabalpur, Gwalior, Ratlam, Neemuch, Mandsaur, and Jawar.

Some shops covered their UPI QR codes with black cloth, while other traders staged a symbolic protest by placing their barcode boxes in one location. Trade associations urged customers to pay in cash instead of using UPI. Traders emphasized that their protest is not against the digital payment system in general, but against the additional financial burden imposed by the proposed MDR.

In Bhopal, traders voiced their dissatisfaction by covering UPI scanners and QR codes in their stores with black cloth. Some entrepreneurs also demonstrated by covering a symbolic UPI figure with black cloth. Traders stated that if an additional cost is charged for digital payments in low-margin businesses, it could negatively affect overall business expenses. They demanded that the government review and withdraw the MDR-related system. The Bhopal traders clarified that they are not against UPI, as digital payments have become an integral part of business, but they object to the proposed additional commission for UPI transactions.

The method of protest differed in Indore. Here, initiated by the Ahilya Chamber of Commerce and Industries, over 125 trade organizations participated in the 'Day without UPI.' Traders transported the boxes containing UPI barcodes used in their establishments to Rajbad and placed them there in protest. Akshay Jain, President of the Indore Retail Garments Association, noted that the traders' goal is not to stop digital payments but to convey their concerns about the proposed commission to the government and relevant authorities. The traders' argument is that additional charges can directly impact operational costs in low-margin businesses.

Problems for customers due to 'Day without UPI'

During the 'Day without UPI,' some markets faced difficulties for shoppers. Many customers accustomed to digital payments came to shop but did not have enough cash. A similar situation was observed at Dal Bazaar in Gwalior. Although traders had warned customers in advance about the inability to accept UPI payments, some buyers still arrived without cash. According to traders, some customers had to resolve the payment issue after the purchase by using money from others, ordering cash from home, or using ATMs. Some buyers shared that UPI had become their daily habit in recent years, so the sudden switch to cash caused them difficulty.

The central point of contention is the 0.4 percent MDR rate for P2M (person-to-merchant) UPI transactions exceeding 2000 rupees. According to available information, this new structure is set to come into effect on October 15, 2026. MDR will not apply to UPI payments to merchants under 2000 rupees. At a rate of 0.4 percent, the MDR would amount to 8 rupees for a 2000 rupee payment and 40 rupees for a 10,000 rupee payment. The maximum limit for charging a transaction fee of 75,000 rupees or more is set at 300 rupees. However, this does not mean that customers will pay an additional 0.4 percent commission when paying via UPI. The government has clarified that this MDR burden should not fall on customers, and no extra charge will be levied on the customer making the UPI payment.

Trade organizations argue that UPI has long been used without MDR, and the introduction of additional costs could seriously affect low-margin businesses. Ramesh Khandelwal, President of the Ahilya Chamber of Commerce and Industries, reported that traders in several cities of Media Pradesh participated in this campaign, stating their disagreement with this system to the government. Akshay Jain, President of the Indore Retail Garments Association, demanded that the government cancel the proposed MDR system before October 15. He warned that if the decision is not canceled, traders might stage a protest similar to submerging UPI QR code machines in water bodies. This statement belongs only to him, not an implemented action.

Protest in Jabalpur: Allegations of lack of objection request

In Jabalpur, P.G. Najapande from the Citizen Consumer Guidance Committee also expressed disagreement with the UPI commission system. He alleged that citizens were not given opportunities to voice objections before the UPI fee was introduced. Referring to Section 10 of the Payment and Settlement Systems Act of 2007, he stated that the government should have first sought public opinion. Najapande also expressed concern that even if collecting funds directly from customers is prohibited, the increase in business operating costs could indirectly affect consumers.

Although waiving fees for UPI sellers accelerated the system's adoption during the Covid pandemic, the growth rate has slowed. In an interview with TOI, Dilip Asbe, CEO and Managing Director, explained how the new commission structure protects small transactions while charging larger merchants who already pay card transaction fees. Furthermore, there are several exceptions designed to protect consumers and small traders.

NPCI forecasts collections of ₹13,000–₹15,000 crore in the first year, with 5% of this amount being allocated to support small traders. The model will be reviewed regularly.

When was the decision made to introduce MDR on UPI, and how was the decision made to set the threshold at ₹2000 and MDR at 0.4%? Will the scheme be periodically reviewed? Previously, P2M transactions were charged from the beginning, and the system followed a global model, keeping P2P free and P2M at reasonable costs, significantly lower than the established MDR for debit and credit cards, internet banking, or wallets. The government's decision for zero MDR in 2020 contributed to the rapid expansion of UPI among sellers during the Covid period.

Over the last four years, the UPI ecosystem—including NPCI, banks, fintech startups, and industry bodies like the Payments Council of India and IBA—has worked towards a review to ensure a self-sustaining system that can create long-term value for the country, citizens, and merchants. UPI growth has slowed, and India remains underpenetrated compared to China and Brazil, where nearly 90% of the adult population uses digital payments daily, whereas this figure is 40% in India.

Therefore, investments are necessary to expand digital payments, especially among low-income groups. The commissions were finalized primarily based on accounting for the costs incurred by various participants in processing UPI transactions. Instead of a fixed fee model, which would penalize low-value operations, a percentage system was chosen so that large margin transactions could constitute the majority of the MDR. Some categories with high bill amounts but low margins were kept with a fixed fee of ₹5 regardless of the bill size to continue stimulating adoption.

Looking at the rates, they are almost comparable to global rates for QR payments, which are charged similarly without exceptions, and these charges remain significantly lower than those levied on large merchants for debit or credit card transactions.

Is a collection of around ₹15,000 crore expected in the first year? The system may require time to stabilize. It is possible that revenue of ₹13,000–₹15,000 crore will be collected in the first year, of which 5% will be allocated to a small merchant fund to stimulate the growth of digital payments among small traders. Management plans to publish relevant guidelines soon.

What is the reason for levying fees when the government could easily cover expenses of ₹20,000 crore, as this is a negligible fraction of its budget, especially when it spends thousands of crores on unmerited subsidies? Why can't banks, NPCI, or RBI bear this burden? The idea is not to burden small players, as over 80% of MDR collections are expected to come from enterprises with turnover exceeding ₹1000 crore. Most of them already accept cards and pay a much higher MDR for cards under the current structure. There are competing demands on public funds, and this is the best way to make the ecosystem sustainable, fostering growth and innovation without dependence on subsidies.

NPCI is a non-profit organization; all profits are reinvested into creating infrastructure, settlement guarantee reserves, innovation, and sustainability. NPCI must not just survive but thrive for the next 100 years.

Banks continue to make significant investments in maintaining and scaling the UPI ecosystem, with the annual expenditure of most large banks often exceeding ₹2000 crore. Moreover, withdrawing ₹5000 in cash can often be replaced by 50–100 UPI transactions, highlighting the scale and efficiency of digital payments. While the shift from cash to digital payments undoubtedly brings savings through reduced costs of handling cash and ATM maintenance, banks also incur significant costs in creating and operating a reliable, secure, and scalable UPI payment infrastructure.

Over the last six years, the entire ecosystem has invested over ₹75,000 crore in maintaining and developing the UPI ecosystem without substantial cost recovery. These investments and innovations will benefit the country in the long run.

What is being done to prevent consumers from bearing the MDR burden? Is NPCI proposing a GST revision? Operating the UPI ecosystem requires about ₹21,000 crore annually, and management aimed to protect small traders and low-value payments to help small businesses attract capital and invest. The goal is also to increase the number of participants and enhance competition. Consequently, person-to-person transactions and seller payments up to ₹2000, without an upper limit on aggregate or repeated transactions, all regular payments or AutoPay, and small individual sellers receiving up to ₹1 lakh per month into their accounts, will not be subject to MDR. Since the majority of MDR will be generated by sellers who already accept card payments, the consumer price is already factored into the MDR charges; otherwise, we would see sellers offering large discounts on UPI and RuPay debit card transactions over the past six years. We have prohibited platform fees and charging sellers from customers. We plan to review this periodically along with the ecosystem. Regarding GST, I have no comments, as this decision will be taken by the Ministry of Finance and the GST Council. However, large merchants will be able to claim input tax credit on GST.

How do you propose using these funds for market development? Do you foresee banks and other service providers offering bonus points for UPI transactions, as happens with credit cards? The purpose of these charges is to ensure the prosperity and self-sufficiency of the ecosystem and its capacity for innovation and value creation, which in turn will boost UPI growth. Today, we observe that payment methods with good cost recovery have better innovations and features. For example, EMIs, rewards, and discounts help boost seller sales, especially in categories like electronics. Once cost recovery begins, the ecosystem will create a powerful incentive to attract new consumers and sellers, install more terminals, and increase activity in underserved geographical regions and categories through digitalization. In changing times and landscapes, this will also allow the ecosystem to proactively invest in cybersecurity and resilience.

Will there be control over sellers and consumers splitting transactions to avoid MDR above ₹2000? Any policy with a ceiling or floor has these secondary effects. If a consumer is willing to participate in transaction splitting at the seller's request, we do not see harm in it, and consequently, no upper limit is set for such transactions. We believe this may be, at best, a short-term phenomenon, and ultimately, the consumer experience will prevail. What we have seen globally and in India is that consumer choice primarily drives digital payments.

The new system caused confusion regarding several aspects of the scheme... Yes, but we are working with industry bodies and ecosystem participants to clarify. For instance, some people interpreted the limit of MDR below ₹2000 as a daily limit rather than a per-transaction limit, which is incorrect.

How do you respond to accusations that the decision was made under US pressure? USTR refers to the 30% market share limitation of UPI and NCMC's access to other competing international schemes, which is a fair and factual point, and we believe it should be the prerogative of the country to make such a decision. We found no references to charges or MDR, and as I mentioned above, it is beneficial for competing companies to keep it free.

Due to the emergence of information regarding the introduction of a 0.4% commission for transactions via Unified Payments Interface (UPI), especially for payments exceeding 2000 rupees, there is increased interest among sellers. This deduction, known as Merchant Discount Rate (MDR), is planned to take effect on October 15, 2026.

Meanwhile, a website claiming to be able to avoid fees for large payments by breaking them down into small parts not exceeding 1999 rupees is circulating on social media. Users are examining these viral applications.

The new MDR rule for UPI is set to come into effect on October 15, 2026. Before this date, an application appeared on the market that claims the ability to bypass the 0.4% fee. Using this tool, large sums can be divided into smaller components.

For example, if a payment of 4500 rupees is required, this application allegedly can split this amount into three parts by generating separate QR codes. These parts might look like two payments of 1999 rupees and one payment of 502 rupees, allowing the entire amount to be received in three stages.

Currently, discussions are ongoing regarding whether such applications are fakes or actually function correctly. Nevertheless, it is strongly recommended to avoid using any unverified applications, as their use could jeopardize your bank account.

Essentially, the Indian government has introduced a new rule for UPI transactions. If the transaction is from an individual to a seller (P2M), an MDR of 0.4% may be applied when receiving an amount exceeding 2000 rupees. Some sellers are attempting to use similar applications to circumvent this commission.

The interface of payment splitting applications is quite simple. The user needs to enter their UPI ID and name. Then, they must specify the total payment amount. The application claims that it will divide this amount into small parts, each less than 1999 rupees, thereby ensuring that no single payment exceeds the established limit.

It is important to avoid such unverified applications, as it cannot be guaranteed that all of them are safe or have been vetted. Using such software poses a risk to your personal information and bank account security. Therefore, before sharing your UPI ID, bank details, or any other confidential information with an unknown application, thorough verification is necessary.