My take on the whole issue: Off late the income of Visa and Master card has dropped due to high usage of all kinds of transactions through UPI. The merchants are having multiple benefits- instant cash, no charges as merchant. Easy to maintain no need to keep enough cash and change for transaction closure. To run the UPI- UPI companies ,VIZA / Master card and banks also have to make money. Hence it is levied. When you read you will understand , how it is structured.
But one point here merchants have already inbuilt their margins assuming debit card and credit card transactions. So cash and UPI was helpful in negating the losses out of credit card and debit card purchases.
In my view , here the US companies are going to get more benefits like Phone Pe and Google pay along with Banks, both are US backed companies like Walmart and Google combined have a market share of 78% appx. Ultimately this charge will come to customers only in some form. Ideally impact is very negligible when it comes to few transactions but in large transactions in numbers may be very high.
UPI Charges: What Has Changed, Who Pays and What It Means for RetailersFor years, UPI has been associated with one simple proposition: pay digitally without paying a transaction fee.
That model is now changing for certain merchant transactions.
MDR is a fee associated with processing a digital payment. It is a cost within the payment ecosystem rather than a separate charge that a customer necessarily sees on the bill.
For example, if a customer makes a ₹10,000 UPI payment to a merchant and the applicable MDR is 0.4%, the MDR works out to:
₹10,000 × 0.4% = ₹40
The customer does not automatically pay an additional ₹40. The cost is handled within the payment ecosystem and, depending on the applicable rules and commercial arrangements, becomes a cost for the merchant/payment participants.
That distinction is important.
Scenario 1: Customer buys groceries for ₹1,500
A customer purchases groceries from a local retailer.
Bill: ₹1,500 Payment: UPI MDR: Zero under the ₹2,000 threshold.
For the customer, nothing changes.
For the retailer, there is no MDR on this transaction.
This is particularly relevant for kirana stores and small-ticket retail where most transactions are below ₹2,000.
Scenario 2: Customer buys a television for ₹45,000
Now consider a consumer-durable purchase.
Bill: ₹45,000 Payment: UPI Applicable MDR: 0.4%
The MDR would be:
₹45,000 × 0.4% = ₹180
The customer still pays ₹45,000, assuming the merchant does not separately pass on the payment cost.
But for the retailer, ₹180 becomes an additional payment-processing cost.
This is where retailers need to start looking carefully at their payment economics.
Scenario 3: A customer buys jewellery for ₹1.5 lakh
Consider a jewellery transaction.
Purchase: ₹1,50,000 Payment: UPI Rate: 0.4% Calculated MDR: ₹600
However, where the transaction falls under the applicable ₹300 cap for transactions of ₹75,000 or more, the MDR would be capped at:
₹300
This makes the effective rate much lower than 0.4% for a high-value transaction.
For retailers handling large-ticket purchases, the cap becomes commercially significant.
Scenario 4: Customer transfers ₹25,000 to a friend
This is completely different.
Person A → Person B Amount: ₹25,000 Payment: UPI
There is no merchant involved.
Therefore, this is a P2P transaction, and the MDR framework for merchant payments does not mean that the customer suddenly pays a percentage on this transfer.
₹25,000 sent = ₹25,000 received.
This distinction between P2P and P2M is one of the most important points to understand.
Scenario 5: Restaurant bill of ₹3,500
Four people have dinner and the restaurant bill is:
₹3,500
They pay the restaurant through UPI.
If the applicable merchant MDR is 0.4%:
₹3,500 × 0.4% = ₹14
The customer does not necessarily see a ₹14 “UPI charge”.
But the restaurant now has to consider payment-processing cost when calculating its margins.
For a restaurant operating at a 5–10% operating margin, even relatively small payment costs can matter when multiplied across thousands of transactions.
Scenario 6: Fuel purchase
A customer buys fuel worth:
₹4,000
The transaction falls into an essential-sector category covered by a special fixed MDR structure.
Instead of applying a percentage in the same way as a normal merchant transaction, the applicable charge is specified at ₹5 per transaction.
So:
Fuel purchase = ₹4,000 Applicable MDR = ₹5
This creates a very different economics from a normal 0.4% merchant transaction.
Scenario 7: Telecom payment
Suppose a customer makes a telecom-related payment of:
₹10,000
Telecom is among the specified essential sectors for which the framework provides a special ₹5 per transaction structure.
So the merchant’s payment cost is not simply:
₹10,000 × 0.4% = ₹40
Instead, the specified category-based charge applies.
This illustrates why retailers and businesses should not assume that one MDR rate applies to every UPI transaction.
Scenario 8: Mutual fund or securities transaction
Financial-market transactions have another structure.
For specified capital-market transactions, including mutual funds and securities-related transactions, the rate is 0.02%, subject to the applicable ₹300 cap.
For example:
Transaction = ₹5,00,000
At 0.02%:
₹5,00,000 × 0.02% = ₹100
So the applicable charge would be ₹100, assuming the transaction qualifies for this category.
Again, the category matters.
What does this mean for retailers?
This is where the issue becomes commercially interesting.
Retailers have traditionally looked at payment methods mainly from the customer’s convenience perspective.
That will increasingly need to change.
A retailer should now look at:
Sales value → Payment mix → MDR → Payment cost → Gross margin → Net contribution
Imagine a retailer doing:
₹10 crore annual sales through UPI
If the average effective payment cost were 0.4%, the theoretical annual payment cost would be:
₹10 crore × 0.4% = ₹4 lakh
That is not necessarily the actual cost because the effective MDR depends on transaction size, category, caps, merchant classification and applicable arrangements.
But the example shows the scale of the issue.
Who could gain?
The change creates a clearer revenue mechanism for participants in the payment ecosystem.
Banks, payment service providers and other participants can potentially earn from qualifying merchant transactions.
The broader objective stated by the Government is to make the UPI ecosystem financially sustainable as transaction volumes continue to grow.
That matters because UPI is no longer a small payment system. It has become a major part of India’s retail-payment infrastructure.
Who could feel the pressure?
The pressure is more likely to be felt by businesses with:
- High-value UPI transactions
- Large transaction volumes
- Low gross margins
- Heavy dependence on UPI
- Limited ability to absorb payment-processing costs
A ₹10 or ₹20 payment-processing cost may look insignificant on one transaction.
Multiply it by 10 lakh transactions and the number becomes commercially meaningful.
The bigger retail question
The interesting question for retailers is not:
“Will customers stop using UPI?”
The more relevant question is:
“What will UPI cost my business after the new MDR structure?”
Retailers should start tracking payment costs just as they track:
- Card charges
- Marketplace commissions
- Delivery costs
- Discounts
- Shrinkage
- Banking charges
- Logistics costs
Payment cost is becoming another operating-cost variable.
For a retailer, the right dashboard could therefore include:
UPI sales % | Average UPI transaction value | Number of UPI transactions | MDR paid | MDR as % of sales | Net margin impact
This will tell management whether the cost is material or negligible.
One simple way to remember the change
Think of UPI in three buckets:
P2P: Person → Person Generally free.
Small-ticket P2M: Customer → Merchant Up to ₹2,000 → Zero MDR under the framework.
Specified higher-value P2M: Customer → Merchant Above the threshold → MDR may apply depending on transaction category.
So the headline “UPI will now be charged” is too simplistic.
The real story is:
UPI remains free for ordinary person-to-person transfers, while specified merchant transactions can carry a regulated payment-processing cost.
For retailers, banks, fintech companies and consumers, the real impact will depend on transaction value, category, payment mix and how businesses ultimately manage the cost.
Note: The examples above are illustrations based on the notified rates and categories. Actual merchant charges can depend on the merchant’s classification, transaction type and applicable commercial arrangements.