Payment trends have shifted rapidly; UPI is now preferred over cards, leaving credit and debit cards behind.
The landscape of digital payments in India is evolving rapidly. People are increasingly opting for UPI over credit and debit cards when making payments to merchants and businesses. This shift is clearly visible in the digital merchant payment market; UPI's market share is steadily rising, while the share of card-based payments is declining.
According to an Equirus report, UPI's share of digital payments made to merchants and businesses climbed to a record high of 77.3% in July. This figure stood at 74.9% in July of the previous year, while in June, UPI's share was 77.1%. This transition is occurring alongside the rapid expansion of India's digital merchant payment market. In July, the market grew by 19.6% year-on-year, reaching ₹11.7 lakh crore. In essence, the overall digital payment market is expanding, and UPI is capturing a significant portion of this growth.
**Decline in Credit Card Share**
Conversely, the share of credit cards has seen a decline. In July, credit cards accounted for 17.7% of merchant payments, down from 19.8% a year earlier; the average share over the past 12 months has hovered around 19%. Debit cards have suffered an even greater decline; their share of merchant payments dropped to 3.2% in July, compared to 3.9% the previous year. This indicates that a portion of spending previously conducted directly via bank accounts or debit cards is now being routed through UPI.
**Rapid Growth of UPI**
UPI has also surged ahead in the broader retail payment market. According to CareEdge Analytics & Advisory, UPI's share of retail payment transactions rose from 73.6% in FY23 to 86.8% by the June quarter of FY27. The next challenge for UPI lies in maintaining the long-term robustness of its system. According to CareEdge, the government may introduce a nominal MDR (payment fee) on certain large merchant payments. However, UPI payments made by ordinary consumers and all person-to-person (P2P) payments are expected to remain free.
**Merchant Payments Account for 29%**
CareEdge reports that merchant payments constitute 29% of the total UPI transaction value. Payments exceeding ₹2,000 account for 67.2% of this segment. Based on FY26 projections, approximately 19.5% of the total UPI value could fall within the scope of the potential MDR. If the MDR is set between 0.25% and 0.50%, it could generate annual revenue ranging from ₹15,000 crore to ₹30,000 crore. Nevertheless, it has been indicated that small, everyday payments and person-to-person UPI transactions will remain free of charge.
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