A proposed merchant discount rate (MDR) on large-value UPI transactions could significantly alter consumer payment behaviour, with nearly 50% of users saying they would switch to debit or credit cards if merchants begin levying charges on UPI payments, according to a LocalCircles survey.
The findings come as the Centre considers changes to the legal framework governing digital payments, potentially allowing it to decide which electronic payment modes remain exempt from transaction charges.
While the proposed amendments do not impose an MDR immediately, they would empower the government to notify exemptions instead of keeping them permanently embedded in law.
The survey was conducted against the backdrop of reports that an MDR could be introduced on person-to-merchant (P2M) UPI transactions at large businesses, particularly for payments above Rs 2,000- Rs 3,000.
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The Finance Ministry has denied reports suggesting that consumers would be charged directly, maintaining that there is no proposal to levy fees on UPI transactions above Rs 3,000.
Despite those assurances, the survey highlights concerns over how merchants may respond if transaction fees are introduced.
Around 50% of respondents said they would revert to debit or credit cards if large merchants passed on the additional cost, while others indicated they would either reduce UPI usage or seek alternative payment options.
Industry bodies, including the Payments Council of India, have argued that restoring MDR for large merchants is necessary to support the long-term sustainability of India's digital payments infrastructure, citing the rising cost of maintaining and expanding UPI systems.
They have also proposed that small merchants, street vendors and person-to-person transfers should continue to enjoy zero-MDR benefits.
The debate reflects the challenge of balancing the rapid growth of UPI with the financial viability of the ecosystem that supports India's digital payments revolution.
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