Merchants' MDR Stance on UPI: A 2026 Survey Insight

Introduction

In the rapidly evolving landscape of digital payments in India, understanding merchant and consumer behavior is crucial. A recent survey by LocalCircles has shed light on the merchants' willingness to bear Minimum Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions. This article delves into the survey's findings and their broader implications.

Survey Details

LocalCircles, a prominent market research firm, conducted an extensive survey in 2026 to gauge merchant and consumer attitudes towards MDR on UPI transactions. The survey covered 32,796 merchants across various districts in India, providing a comprehensive view of the current scenario.

Merchants' MDR Stance

The survey revealed that 41% of the merchants surveyed are unwilling to pay any MDR on UPI transactions above Rs 2000. This resistance is significant, considering the historical context where an MDR of up to 0.3% was applied until December 2019. The introduction of zero MDR in January 2020 has further complicated the situation.

Here's a detailed breakdown of the merchants' responses:

MDR Percentage	Percentage of Merchants
0%	41%
0.04%	15%
1%	12%
0.25%	8%
0.5%	5%
0.2%	5%
0.1%	5%
0.08%	0%
Do not accept UPI	9%

UPI Users' Preferences

The survey also included UPI users, with over 45,000 responses collected from 322 districts across India. The results indicated a potential shift in user behavior if MDR is levied on higher-value transactions.

53% of UPI users would move away from UPI for higher-value transactions if MDR is levied on them. The preferred alternatives are:

• 27% would switch to credit cards
• 14% would switch to debit cards
• 12% would revert to cash or bank transfers

Only 12% said they would continue using UPI if the fee is levied, while another 18% would continue if the merchant absorbs the cost.

Implications for Digital Payments

The survey's findings have significant implications for the future of digital payments in India. Merchants' reluctance to bear MDR charges could lead to a decline in UPI transaction volumes, especially for higher-value transactions. This shift might prompt payment processors to reconsider their fee structures or explore alternative payment methods to retain user trust and transaction volumes.

FAQs

What is MDR?

MDR stands for Minimum Discount Rate, a fee paid by businesses to payment processors for accepting digital payments.

Why is MDR important?

MDR is crucial as it affects the cost structure of businesses accepting digital payments and influences consumer payment preferences.

What are the potential alternatives to UPI if MDR is levied?

If MDR is levied, consumers may switch to credit cards, debit cards, or revert to cash or bank transfers.

Conclusion

The 2026 LocalCircles survey highlights a critical juncture for digital payments in India. Merchants' resistance to MDR and potential shifts in consumer behavior underscore the need for a balanced approach to fee structures that consider both merchant and consumer interests.

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