UPI MDR Reform Tests India’s Digital-Payments Model as RBI Sees Limited Risk of Cash Revival
UPI MDR Unlikely to Reverse India’s Digital Payment Shift, Says RBI Deputy Governor
New Delhi: The Reserve Bank of India (RBI) has indicated that the introduction of a Merchant Discount Rate (MDR) on select high-value UPI transactions is unlikely to trigger a significant shift by consumers or merchants back towards cash. RBI Deputy Governor Shirish Chandra Murmu described concerns over higher cash usage as an initial apprehension, while highlighting the continued expansion of India’s digital payments ecosystem.
The revised framework is scheduled to take effect from October 15, 2026. Under the framework, a 0.4% MDR will apply to eligible person-to-merchant UPI transactions above ₹2,000, subject to specified exemptions and caps. Person-to-person UPI transfers remain outside the MDR framework.
The policy marks a shift from the long-standing zero-MDR model for UPI merchant payments and is aimed at creating a more sustainable revenue framework for the digital payments ecosystem. The government has also stated that the MDR burden should not be passed on to consumers, with monitoring mechanisms being put in place.
Policy Impact
The key policy question is whether introducing a transaction-linked merchant fee can strengthen the financial sustainability of UPI without weakening adoption. RBI’s position suggests that the scale and structure of the revised charges are unlikely, by themselves, to reverse India’s broader digital-payment transition. However, implementation and merchant behaviour will remain important factors to monitor, particularly regarding any attempt to pass costs on to consumers.
Why It Matters: The decision could shape the next phase of India’s UPI ecosystem by balancing widespread digital-payment adoption with the need for a sustainable financial model.
