Will the new UPI rule increase the burden on shopkeepers? Cash payments could see a resurgence..

The decision to levy a 0.4% Merchant Discount Rate (MDR) on certain UPI payments exceeding ₹2,000 has raised concerns among traders. Business owners argue that this charge will increase the financial burden on shopkeepers operating on thin profit margins. Some traders also fear that cash payments could rise again in the market as a way to avoid this charge.

The National Payments Corporation of India (NPCI) announced this new system on September 15. Under this arrangement, an MDR fee of 0.4% will be applied to select merchant UPI transactions exceeding ₹2,000, starting October 15, 2026. The charge will be capped at ₹300 for transactions of ₹75,000 or more. However, not all UPI payments will attract this charge; there will be no fee on any UPI payment up to ₹2,000.

**Concerns troubling small traders**
Paramjit Singh Pamma, President of the Sadar Bazar Bari Market Traders Association in Delhi, stated that the fee on UPI payments above ₹2,000 could impose a monthly burden of ₹3,000 to ₹5,000 on small traders. He remarked that this move could undermine government efforts to promote digital payments. According to him, while there is talk of reducing the need for people to carry cash, such fees could drive both traders and customers back to cash transactions.

On the other hand, Praveen Khandelwal, Secretary General of the Confederation of All India Traders (CAIT), stated that this fee would not affect small shopkeepers. He noted that the NPCI has clarified there will be no charge on payments made via RuPay debit cards, an option that large merchants can adopt. Khandelwal added that efforts are also underway to strengthen the cybersecurity of digital payments, and a portion of the revenue generated from MDR will be utilized for this purpose.

**Fear of greater difficulties for wholesale traders**
Devraj Baweja, President of the Delhi Vyapar Mahasangh, expressed concern regarding this decision, particularly as it comes just before the festive season. He noted that market demand is already weak, and the new charges could particularly impact wholesale traders. According to Baveja, wholesalers might have to visit banks to make payments to avoid the fees associated with large UPI transactions, which could increase both the time required and the hassle involved in doing business.

A shopkeeper from Meerut’s Surajkund Sports Market mentioned that, given the high cost of sports goods, about 80 percent of his sales involve payments exceeding ₹2,000. He explained that if a customer lacks cash, the shopkeeper is often compelled to accept UPI payments; refusing to do so could drive the customer to a competitor's shop. According to the shopkeeper, the merchant might have to bear the burden of the charges in such instances, as asking the customer to pay an additional fee would not be easy.

**Textile and other traders concerned about shrinking profits**
Shivam Sharma, a textile merchant in Meerut, stated that payments exceeding ₹2,000 are common when purchasing clothes. During festivals and the wedding season, customers often make purchases worth several thousand rupees. He noted that customers now prefer using UPI even for large payments. Since profit margins in the textile business are not very high, the MDR charges could impact the shopkeepers' profitability.

According to the NPCI, a zero-MDR facility will be mandatory for all transactions for small merchants receiving up to ₹1 lakh per month.

**Could cash payments rise?**
Sagar Khurana, a dry fruit seller in Delhi’s Rohini Sector-7, remarked that while digital payments were previously promoted, the introduction of charges might force traders to revert to cash transactions. Nitin Chaudhary, a grocery store owner in Chilla Village, noted that the habit of using UPI means very few people carry cash these days; consequently, the change in fee structures could create difficulties for both shopkeepers and customers.

Some experts believe that the implementation of MDR on UPI transactions could impact the country's rapidly growing mobile payment ecosystem. However, the exact impact of the charge will depend on which transactions are included in the new system and which payment options merchants adopt.

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