Only 17% of merchants and businesses are willing to bear a Merchant Discount Rate of 0.4% on Unified Payments Interface transactions exceeding Rs 2,000, indicating resistance to the fee reportedly under consideration according to a survey by LocalCircles. The survey received more than 32,000 responses from merchants and businesses across 242 districts.
Of the 32,796 respondents who answered a question on the maximum MDR they would accept, 41% said they would not bear any such charge. Another 9% said they did not accept UPI payments.
MDR is the fee paid by merchants to banks and payment companies for processing digital transactions.
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Half of those surveyed were willing to bear an MDR of at least 0.04%. However, acceptance declined as the proposed rate increased. While 35% would accept a charge of 0.1% or more and 25% would bear at least 0.25%, only 17% were willing to absorb a rate of 0.4% or higher.
LocalCircles said 15% of respondents selected a maximum MDR of 0.04%, while 5% each were prepared to bear rates of up to 0.1%, 0.2% and 0.5%. About 8% selected up to 0.25%, while 12% were willing to pay up to 1%.
Only 17% of merchants surveyed are willing to bear a MDR of 0.4% on UPI payments above INR 2,000
Government Exempts Payments Of Up To Rs 2,000
The findings follow a Finance Ministry notification on September 14 that barred banks and payment system providers from charging fees on UPI payments of up to Rs 2,000. The protection, notified under Section 10A of the Payment and Settlement Systems Act, 2007, also covers RuPay debit card payments.
Transactions exceeding Rs 2,000 remain outside the exemption, creating the legal scope for MDR on higher-value payments. Reports suggest that the UPI and Services Steering Committee, headed by the National Payments Corporation of India, is considering a rate of about 0.4%. The framework has not yet been finalised.
Finance Minister Nirmala Sitharaman told Parliament that the legislative change was an enabling provision and did not impose a tax or transaction charge on UPI users. Person-to-person UPI transfers will remain free.
The government expects more than 90% of transactions, including routine purchases such as groceries, milk and vegetables, to remain exempt from MDR. Some reports suggest that the charge may apply only to larger merchants, including businesses with annual turnover exceeding Rs 1.5 crore.
Customers May Shift To Cards Or Cash
Merchants unable to absorb the fee could pass it on to customers or discourage UPI use for higher-value purchases. An earlier LocalCircles survey found that 53% of users would move away from UPI for payments above Rs 3,000 if merchants passed on the MDR. Of those respondents, 27% preferred credit cards, 14% debit cards and 12% cash or bank transfers.
UPI processed 24.51 billion transactions worth Rs 29.82 lakh crore in August 2026. Its annual transaction value increased from Rs 0.07 lakh crore in FY17 to Rs 314 lakh crore in FY26.
The latest survey comprised 48% of respondents from tier-one districts, 33% from tier-two districts and 19% from tier-three and tier-four districts.
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