UPI MDR Explained: Women Leaders on Merchant & Consumer Impact

By: Ayushi Dutta, Senior Correspondent

How Will UPI MDR Affect Merchants and Business Margins?

For merchants, MDR is fundamentally a cost-of-acceptance question.

Shallu Arora suggests that businesses should not look at MDR in isolation. Instead, finance teams should compare the total cost of accepting UPI with the cost of cards, payment gateways, cash handling, reconciliation, and other payment channels. She highlights five factors businesses should examine: transaction value and volume, existing payment costs, customer economics, margin structure, and alternative payment methods.

Her example illustrates why the percentage can matter differently across businesses. A 0.4% cost represents a very different economic burden for a business with a 40% gross margin compared with one operating at a 3-5% margin.

“For a finance function, therefore, the correct question would not simply be ‘What is the MDR?’ but rather ‘What is the total cost of accepting each payment channel?’ The key is to keep the cost proportionate and predictable so that digital payments remain attractive for merchants as well as customers.”

Shruti Mehndroo similarly highlights the pressure on mid-sized businesses. For a distributor or retailer operating on a 3% net margin, she notes that a 0.4% cost against revenue can represent a significant proportion of the business's profit. There is also an operational issue.

Merchants will need to account for MDR in their settlement and reconciliation processes, particularly where payment receipts have traditionally been matched directly with sales.

For businesses with significant UPI collections, this means revisiting payment-channel economics before the framework comes into effect. Yet not all the leaders see MDR purely as a burden.

Ridhi Doongursee believes a targeted charge on higher-value transactions can create a revenue stream for an ecosystem that has historically absorbed high costs. She also argues that a modest

MDR could reduce the financial burden on smaller or mid-sized payment participants that may not have the capital to absorb losses indefinitely.

“Today, participating in UPI at scale is viable mainly for heavily capitalised players that can absorb losses for extended periods. Even a modest MDR on higher-value transactions can reduce this burden, particularly for mid-sized and smaller participants, and help create a more diverse and resilient payments ecosystem.”

Tapasya Barejaa similarly describes a calibrated MDR as potentially reasonable if it remains nominal, transparent, and proportionate.

The critical question for merchants may therefore become not “Is UPI free?” but “What value do we receive for the cost of accepting UPI?”

UPI MDR vs Financial Inclusion: Can Both Goals Coexist?

The strongest common thread across the leaders' responses is that sustainability and financial inclusion do not necessarily have to be opposing goals. The distinction lies in where the cost is applied.

A 500 payment to a local vendor is economically different from a 50,000 commercial transaction. The new framework attempts to reflect that distinction by protecting smaller-value payments and eligible small merchants while applying MDR to selected higher-value merchant transactions.

For Tapasya Barejaa, this creates the possibility of moving UPI into its next stage: from achieving extraordinary scale to ensuring that the infrastructure supporting that scale remains secure, resilient and sustainable.

“I don’t see sustainability and financial inclusion as competing objectives. In fact, in the long term, one is necessary to support the other. The right approach, therefore, is a carefully calibrated model: keep UPI free for consumers, protect small merchants and everyday transactions, and create a reasonable economic model for larger commercial transactions.”

Shallu Arora describes the issue similarly, arguing that sustainability should support inclusion rather than undermine it. She points to the need for continued investment in fraud monitoring, cybersecurity, dispute resolution, system availability, and capacity expansion.

Sneha Oberoi also believes that protecting small-value transactions is essential. Her preferred approach is one where a modest charge on larger commercial transactions supports investment while everyday users continue to experience UPI as accessible.

Shruti Mehndroo goes further, describing the change as a necessary maturation of a payment rail that is increasingly being used at national and international scale. But she also stresses accountability: if merchants are expected to bear the cost, they should be able to see where the money goes and what improvements it creates.

“I think this is a necessary maturing, and I'd say that even as someone who advises the merchants paying it. No payment rail at this scale runs on goodwill.”

What Does the New UPI MDR Framework Exclude?

Understanding what MDR does not cover is essential to assessing its impact.

Under the announced framework:

• P2P UPI transactions remain free, irrespective of transaction value.
• Merchant transactions up to 2,000 remain free.
• Eligible small merchants remain under the zero-MDR framework.
• Standard eligible P2M transactions above 2,000 attract 0.4% MDR.
• The standard MDR is capped at 300 per transaction for transactions of 75,000 and above.
• Certain essential-service categories have a flat 5 MDR for specified transactions.
• Consumers are not supposed to be charged MDR directly.
• Capital-market transactions have a separate MDR structure.

This means the headline figure of 0.4% does not apply uniformly to every UPI payment.

For Ridhi Doongursee, this limited scope is crucial. She argues that the overwhelming majority of everyday UPI use remains outside the chargeable segment, protecting the part of UPI that has contributed most directly to financial inclusion.

“The overwhelming majority of UPI payments - especially P2P transfers and routine P2M payments such as groceries, local retail, and transit below 2,000, which were key cash transactions earlier remain unaffected. This is where the inclusion story sits and continues as free.”

What Could Be the Long-Term Impact of UPI MDR on Digital Payments?

The long-term outcome of UPI MDR will depend less on the headline rate and more on how the ecosystem responds.

For merchants, the immediate priority will be understanding which transactions are chargeable and incorporating the cost into payment-channel economics. Businesses may also reassess the relative costs of UPI, cards, gateways, and cash.

For consumers, the key issue will be whether the payment experience remains simple. If MDR remains invisible to customers, everyday UPI usage may see limited disruption. If businesses begin introducing indirect charges or payment restrictions, the impact could become more noticeable.

For fintechs and banks, MDR could provide a new source of revenue to support investments in technology, cybersecurity and payment infrastructure.

Ridhi Doongursee also sees potential implications for competition. A revenue stream from higher-value transactions could reduce the extent to which UPI participation depends on heavily capitalised companies absorbing losses, potentially supporting a broader payments ecosystem.

For Shruti Mehndroo, transparency will be central. She argues that the ecosystem should publish where MDR revenue is going, monitor whether transactions are shifting towards personal UPI IDs or split payments, and remain willing to adjust the framework if the data reveals unintended consequences.

“What I'd want to see is simple. Publish where the MDR money goes, track leakage openly, and be willing to adjust the rate if the data says so.”

Shallu Arora similarly believes that implementation will determine whether MDR becomes a manageable business cost or a broader concern. In her view, the charge can be sustainable if it remains targeted, transparent, and proportionate.

“Therefore, I would regard MDR as a manageable cost if it remains targeted, transparent, and proportionate, rather than becoming a broad-based cost on digital payments.”

Ultimately, the UPI MDR debate is less about whether India should have “paid UPI” and more about how a digital public payment infrastructure can fund its next phase without compromising the accessibility that made it transformative.

The women business leaders' perspectives reveal a broad area of agreement: small-value payments and financial inclusion need protection, while a payment ecosystem operating at unprecedented scale requires sustainable investment. The point of debate is how that balance should be maintained. As the October 15, 2026, implementation date approaches, the real test will therefore be practical: whether merchants can absorb or manage the cost, whether consumers continue to experience UPI as seamless, and whether the revenue generated translates into a more resilient, secure, and inclusive payment ecosystem.