UPI MDR Impact: Will Merchants Pass the 0.4% Fee to You?

Can Merchants Pass the New UPI MDR to Customers?

The rules are clear on paper: the new 0.4% UPI Merchant Discount Rate is charged to the merchant, not the customer, and cannot be added as a separate line-item fee at checkout. But rules on paper and behaviour in the market don't always match. Here's a realistic look at pass-through risk after October 15, 2026.

What the Framework Actually Says

Under the new MDR structure, eligible person-to-merchant UPI payments above ₹2,000 attract a 0.4% fee, capped at ₹300 for transactions of ₹75,000 and above. The charge is deducted from the merchant's settlement by the acquiring bank. Merchants and UPI app providers are explicitly barred from adding it as a visible surcharge to the customer's bill.

Why Pass-Through Is Still a Real Concern

A recent LocalCircles survey of merchants found that only a small minority were willing to absorb the new fee without adjusting their own pricing, with a large share saying they would not bear any MDR on higher-value UPI payments at all. That reluctance suggests many businesses may look for indirect ways to offset the cost, even without a visible surcharge line.

Direct vs. Indirect Pass-Through

• Direct pass-through — adding ""UPI MDR"" as a separate charge on the bill. This is not permitted under the current framework.
• Indirect pass-through — quietly raising listed prices across the board to cover the average MDR cost. This isn't explicitly prohibited and is harder to trace back to any single transaction.

Most of the realistic pass-through risk sits in the second category, not the first.

What Consumers Are Already Signalling

Separate consumer research on the topic found that a majority of UPI users said they would consider switching to another payment method for transactions above ₹3,000 if they ended up bearing the cost — with credit cards, debit cards, and cash all cited as likely alternatives. That kind of consumer pushback is itself a disincentive for merchants against overt pass-through.

What's Likely to Happen in Practice

• Small, low-margin transactions: unlikely to see any visible change, since most fall under the ₹2,000 exemption anyway
• Large retailers and e-commerce platforms: may absorb the cost initially, then review pricing over subsequent quarters
• High-value discretionary purchases: most exposed to gradual price adjustments over time, though not as an explicit UPI charge

How to Protect Yourself as a Shopper

Compare prices before and after October 15 for purchases you make regularly, and don't hesitate to ask a merchant directly if you notice a price change that seems tied to payment method. Since visible MDR surcharges aren't permitted, any charge presented that way is worth questioning.

Frequently Asked Questions

Is it legal for a merchant to add a UPI MDR charge to my bill? No, the framework does not allow MDR to be passed on as a separate customer-facing charge.

Could prices rise anyway? Some merchants may adjust their general pricing over time, though this wouldn't be labelled as an MDR charge.

Are small purchases at risk of this? Unlikely, since most small-value transactions stay under the ₹2,000 exemption.

What should I do if I see a UPI surcharge on my bill? Raise it with the merchant directly, since such a charge isn't permitted under the current rules.

Will this make people switch away from UPI? Survey data suggests a meaningful share of users would consider alternatives for larger payments if costs were passed on, though actual behaviour will depend on how merchants respond.

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