RBI expects UPI adoption to hold steady despite new merchant fees

From October 15, merchants processing UPI transactions exceeding ₹2,000 will face a 0.4 per cent merchant discount rate (MDR), raising concerns about the long-term viability of the digital payments ecosystem. Industry observers have warned that shopkeepers may choose to either pass on the additional costs to consumers or discourage UPI payments in favour of other methods.

However, the RBI has sought to allay these fears, signalling confidence that the MDR imposition will not precipitate a sharp drop in UPI adoption. The central bank's assessment suggests that India's digital payments momentum remains robust enough to absorb the fee structure without substantial disruption.

The MDR represents the first major fee imposed on UPI transactions since the platform's launch, marking a significant policy shift as regulators attempt to create a more sustainable business model for digital payment infrastructure. The charge applies selectively to higher-value merchant transactions, potentially creating a tiered system that may encourage consumers to continue using UPI for routine purchases.

Stakeholders including merchants and fintech companies have flagged concerns about the practical implementation and potential impact on transaction volumes. The RBI's position suggests policymakers believe the fee level strikes a balance between ensuring financial viability of payment processors and maintaining the accessibility of digital payments across India's diverse merchant base.