UPI MDR Explained: Women Leaders on Merchant & Consumer Impact

By: Ayushi Dutta, Senior Correspondent

UPI MDR Backlash: What Are Businesses and Industry Experts Concerned About?

The backlash around MDR stems largely from the fact that UPI's growth has been closely associated with the perception of being free.

The new framework effectively changes the economics of some transactions after years of zero-MDR UPI. This has raised concerns around merchant margins, possible indirect consumer costs, and whether businesses may shift customers towards cash or other payment methods.

Industry reactions have also focused on the possibility that larger payment platforms could benefit from the new revenue stream. Reuters reported that the policy could strengthen the position of the dominant UPI players, while concerns have also been raised around market concentration.

However, the structure is considerably narrower than the phrase “UPI charges” may suggest.

The government has clarified that P2P payments remain completely free, irrespective of transaction value. Payments to merchants up to 2,000 and eligible small merchants also remain outside the MDR framework. As a result, approximately 96% of P2M transactions are expected to remain unaffected.

Ridhi Doongursee points to these safeguards as central to understanding the policy. She notes that only a limited segment of higher-value merchant transactions is chargeable, while sensitive categories have additional caps and consumers are not supposed to bear the MDR directly.

“Only payments above Rs 2000 and only to larger merchants who get a monthly UPI payment of above Rs 1 lac have an MDR applicable. I.e., 96% of payments stay free. Various sensitive transaction categories are capped at Rs. 5, and there is an overall cap of Rs. 300 across categories.”

Shruti Mehndroo, Partner - GCC Advisory and Managed Services, B.B. Mathur & Company, however, draws attention to a different risk: behavioural leakage.

According to her, merchants may not necessarily display a visible “0.4% UPI fee”. Instead, the cost could potentially be absorbed into pricing or influence payment behaviour. She is particularly concerned about scenarios in which customers are encouraged to make payments to an owner's personal UPI ID or split a transaction into smaller payments to avoid the charge.

“The leak I'd worry about more isn't cash. It's customers being asked to pay into the owner's personal UPI ID, or to split a 4,000 bill into two payments. That pulls transactions out of the formal trail, which undoes part of what UPI achieved for GST and formalisation.”

Such practices, she argues, could take transactions away from formal merchant trails and weaken some of the formalisation benefits associated with digital payments.

Also Read: GST Reforms: Women Business Leaders Share Thoughts & Outlook

How Will UPI MDR Impact Consumers and UPI Adoption?

The biggest question for consumers is simple: Will paying through UPI actually become more expensive?

Formally, the answer under the new framework is no. MDR is a merchant-side charge, and consumers are not supposed to be charged it directly. But the indirect effect is more complicated.

Shallu Arora, Chief Financial Officer, Sirca Paints India, points out that a merchant facing an additional payment cost could respond by absorbing it within existing margins, incorporating it into overall pricing, offering discounts for other payment modes, or encouraging customers to use cash or another payment channel. The impact will depend significantly on the merchant's margins and competitive environment.

“My view is that the immediate impact on consumers should be limited, but the way merchants communicate and implement the charge will be important for maintaining consumer confidence. The government's stated position is quite clear: consumers should not bear the MDR directly.”

A 0.4% cost may be relatively manageable for a high-margin business but more meaningful for a low-margin business operating at scale. This is particularly relevant for sectors where prices are tightly regulated or highly competitive.

For Sneha Oberoi, the key concern is the perception of UPI as a free and frictionless payment method. If merchants begin passing costs through higher prices or convenience fees, particularly on larger purchases, the consumer experience could change. She believes a carefully designed framework that protects small transactions and keeps charges transparent can help preserve consumer confidence.

“A carefully designed framework that protects small transactions and keeps charges transparent would help maintain consumer trust and continued UPI adoption. The objective should be to preserve UPI’s simplicity and affordability while creating a sustainable framework for its next phase of growth.”

Tapasya Barejaa shares a similar view. She says UPI's greatest strength has been its simplicity and that consumers should ideally continue to experience the payment process without additional friction. At the same time, she does not expect the framework to fundamentally alter UPI adoption because everyday transactions and small merchants remain protected.

“UPI’s biggest success has been its simplicity and ease of usage, being frictionless for the consumer. While MDR is a merchant-side charge and consumers are not expected to pay it, there is always a possibility that some businesses may attempt to recover the additional cost indirectly.”

Ridhi Doongursee adds another dimension: cash is not cost-free either. Cash involves handling, security, reconciliation, and counterfeit-related risks. From that perspective, the relevant comparison for a merchant is not simply “UPI versus free cash”, but the total cost of accepting different payment methods.

The consensus emerging from the leaders is therefore that communication will matter almost as much as the charge itself. If consumers continue to experience UPI as simple and largely free, adoption may remain resilient. If charges or payment restrictions begin appearing inconsistently at merchant counters, higher-value transactions could see greater behavioural changes.