UPI MDR debate flags potential ₹27,000 crore annual cost for Indian retail
Former ONDC chairman R S Sharma says a 0.3% merchant discount rate on UPI could raise costs for small merchants and push some transactions back to cash. He argues the government should fund UPI through savings from lower cash handling and currency printing costs.
What happened
Unified Payments Interface (UPI) · Former ONDC chairman R S Sharma warned that future MDR on UPI could raise costs for small Indian merchants, encourage cash
Key facts
- UPI processed more than 24,000 crore transactions in FY2025-26
- UPI transaction value was around ₹314 lakh crore in FY2025-26
- Average UPI transaction was about ₹1,300
- 86% of merchant payments were below ₹500
- A 0.3% MDR could cost the retail economy around ₹27,000 crore annually
- RBI spends around ₹5,000-6,400 crore annually printing currency notes
Why this matters
Retailers and fintechs should evaluate partnerships or acquisitions that reduce payment-processing exposure as UPI’s zero-MDR model faces renewed policy scrutiny.
What to watch
- Union Budget or Ministry of Finance announcements on UPI incentive allocations and reimbursement continuity.
- NPCI, RBI, or payment-industry consultation papers on UPI pricing, MDR, interchange, or merchant-category segmentation.
- Any proposal distinguishing small merchants, low-value transactions, government payments, and large retailers.
- Bank and payment-aggregator commentary on UPI monetization, QR acquisition costs, and merchant onboarding economics.
- Changes in cash-in-circulation growth, ATM/cash-management costs, and retail evidence of payment steering.
- Model payment-cost exposure by UPI share of sales, average ticket size, and gross margin; stress test 10-30 bps MDR scenarios.
- Prioritize payment-routing capability across UPI, cards, wallets, cash, and bank-transfer rails to reduce dependence on a single acceptance-cost regime.
- Review checkout policies for surcharge legality, cash-discount options, minimum-ticket thresholds, and customer-experience risks before any rule change.
- Negotiate acquiring, QR, loyalty, and settlement terms now, especially for high-volume stores and marketplace sellers.
- Build messaging and promotional contingencies for a potential shift in consumer payment behavior toward cash or cards.