BENGALURU: Businesses across Bengaluru are raising concerns over the introduction of Merchant Discount Rate (MDR) charges on certain high-value UPI transactions, saying even a relatively small payment fee could put additional pressure on already tight profit margins.
The new UPI framework, announced by the National Payments Corporation of India (NPCI), is scheduled to take effect from October 15, 2026. Under the framework, eligible person-to-merchant UPI transactions above ₹2,000 will generally attract an MDR of 0.4%, capped at ₹300 per transaction. Certain sectors, including fuel, telecom, railways, insurance and agricultural inputs, will instead face a flat ₹5 MDR on transactions above ₹2,000.
Bengaluru Traders Worried About Narrow Margins
Fuel dealers, pharmacies, restaurants and wholesale traders in Bengaluru have expressed concern about the additional cost. Business groups say sectors that operate on relatively narrow margins may find it difficult to absorb another transaction-related expense.
Fuel station operators, in particular, have sought an exemption from the proposed MDR, arguing that the additional cost could affect their operating economics. Restaurant operators and other merchants have also questioned the impact of the new charges on businesses that increasingly depend on UPI for everyday collections.
For many businesses, the concern is not simply the amount charged on an individual transaction but the cumulative cost across hundreds or thousands of payments.
‘We Cannot Shrink Our Margins’
Merchants argue that passing the additional cost on to customers is not a straightforward option. The government and NPCI have stated that the MDR is to be borne within the merchant-payment ecosystem and should not be passed on to UPI customers.
That leaves businesses with the question of how to absorb the cost without increasing prices or reducing already limited margins.
The issue is particularly relevant for restaurants, retailers, pharmacies and traders where customers increasingly prefer scanning a QR code rather than paying in cash or using cards.
Most Small UPI Payments Will Remain Free
The new framework does not mean that all UPI payments will become chargeable.
Person-to-person UPI transactions will remain free, irrespective of the amount transferred. Merchant payments up to ₹2,000 will also remain free, while eligible small merchants covered by the zero-MDR framework will continue to receive protection. The government estimates that around 96% of all person-to-merchant UPI transactions will remain unaffected.
For eligible merchant transactions above ₹2,000, however, the new MDR will apply from October 15.
Businesses Fear Impact on Digital Payments
Bengaluru’s business community has also raised concerns that additional charges could discourage merchants from relying as heavily on UPI, particularly for higher-value purchases.
UPI has become a major part of India’s retail payment ecosystem, allowing customers to make instant payments without carrying cash. Businesses have invested in QR-based payment systems and increasingly use digital transactions for everything from restaurant bills to wholesale purchases.
Industry representatives have therefore called for reconsideration of the framework, particularly for businesses operating on thin margins.
Government Says UPI Ecosystem Needs Sustainable Funding
The government has defended the new framework as a way of supporting the long-term sustainability of the UPI ecosystem. According to the Finance Ministry, MDR is not a government tax; the revenue is distributed among participants in the payment ecosystem, including banks and payment application providers.
The framework is intended to provide a mechanism to support the infrastructure, security and continued expansion of UPI while keeping person-to-person payments and most small merchant transactions free.
October 15 Deadline Approaches
With the new MDR framework scheduled to begin on October 15, Bengaluru businesses are now assessing how the additional cost could affect their operations.
For merchants, the central issue remains whether the new charges can be absorbed without affecting prices, margins or customers’ preference for digital payments. Business groups are seeking further clarity and exemptions, while the government maintains that the vast majority of UPI transactions will continue without MDR.
The debate is likely to intensify as businesses prepare for the festive shopping season, when digital payment volumes traditionally rise.
