76% of UPI Users May Shift to Cash or Cards Post MDR Implementation
A recent survey indicates that a significant majority of UPI users may abandon digital payments for cash or cards due to new charges.
76% of UPI users might switch to cash or cards if MDR is implemented.
Only 14% are willing to continue using UPI with additional fees.
The new MDR will apply to payments above Rs 2,000 starting October 15.
A recent survey conducted by LocalCircles reveals that 76% of UPI users are likely to transition to cash or credit cards if a new merchant discount rate (MDR) of 0.4% is enforced on transactions exceeding Rs 2,000 starting October 15. This shift poses a significant challenge to the UPI system, which has been favored for its zero-cost structure for merchants since its inception six years ago.
The MDR, which is a fee shared among banks and payment service providers for processing digital transactions, will apply specifically to person-to-merchant payments above the Rs 2,000 threshold. The Finance Ministry has stated that this fee should not be passed on to consumers, emphasizing that UPI transactions should remain free for users. However, the survey indicates that many consumers are skeptical about merchants absorbing this cost.
In the survey, only 14% of respondents expressed a willingness to continue using UPI despite the potential for additional charges. The majority indicated they would seek alternative payment methods, with 27% preferring cash, 26% opting for credit cards, and 14% choosing debit cards. This suggests a significant shift in consumer behavior, with many users potentially reverting to cash transactions, which could undermine the digital payment ecosystem.
The implications of this transition could be profound, particularly for the retail and service sectors that have increasingly relied on UPI for higher-value transactions. UPI recorded a staggering 24.51 billion transactions worth Rs 29.82 lakh crore in August 2026, with payments above Rs 2,000 accounting for 67% of the total value. If consumers shift away from UPI, it could disrupt the momentum of digital payment adoption in India.
As the October 15 deadline approaches, the government is working with the Indian Banks' Association to ensure compliance with the new MDR framework. An awareness campaign is also planned to inform consumers that they should not incur additional charges for UPI transactions. However, the lack of a clear enforcement mechanism raises concerns about how effectively these measures will be implemented, leaving many to wonder how this will affect their payment choices in the near future.
