Key facts
- India has introduced a 0.4% Merchant Discount Rate (MDR) on UPI transactions over ₹2,000.
- The new fee will apply from October 15.
- The Retailers Association of India (RAI) stated the MDR could push small merchants back to cash.
- RAI warned the charge could undo years of progress in digital payment adoption.
- Stockbrokers Zerodha and INDmoney are concerned about the cost impact of the MDR.
- Nithin Kamath of Zerodha suggested a ₹5-10 cap on broking transactions.
India's government has introduced a 0.4% Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions exceeding ₹2,000, a move that has drawn sharp criticism from retailers and stockbrokers. The new fee, effective October 15, aims to end nearly six years of free UPI payments for merchants.
The Retailers Association of India (RAI) expressed concern that the MDR could reverse the progress made in digital payment adoption among small retailers, particularly ahead of the busy festive season. RAI CEO Kumar Rajagopalan stated that the charge creates an incentive for MSME retailers, who often operate on thin margins, to steer transactions back towards cash. He also argued that UPI payments directly from bank accounts should not incur the same fees as credit card transactions, as they do not involve interchange costs or credit risk.
RAI further warned that a shift back to cash would undermine the government's formalization agenda, as such transactions would not be captured for GST reporting. The association believes UPI acceptance should be incentivized rather than taxed.
Investment platforms like Zerodha and INDmoney have also raised concerns about the financial implications of the new MDR. Nithin Kamath, co-founder of Zerodha, suggested a cap of ₹5-10 on broking transactions to mitigate the impact. He noted that brokers could incur MDR even on funds transferred via UPI that do not result in trades or generate brokerage revenue, and that Zerodha could not absorb these additional costs indefinitely. Ashish Kashyap of INDmoney illustrated that for a large investment platform, the MDR could amount to millions of rupees annually.