UPI MDR proposal: Street vendors may pass on charges to customers or switch to cash, ISB survey finds

While most UPI transactions are outside the scope of the proposed merchant discount rate (MDR) framework, payments made by street vendors to suppliers could attract charges if they exceed Rs 2,000. This may prompt vendors to pass on the additional cost to customers or revert to cash transactions, according to a survey by the Indian School of Business (ISB), according to Times of India report.

The study, conducted by ISB's Centre for Analytical Finance (CAF), found that nearly 70% of street vendors make supplier payments of more than Rs 2,000, bringing them within the proposed MDR threshold. Around 10.4% of respondents said their suppliers had demanded additional charges on UPI payments in the 10 days preceding the survey. All respondents said they would switch to cash if suppliers imposed such charges.

The survey covered 722 street vendors across 14 states and Union Territories and 64 urban local bodies. It found that 67% of respondents accepted UPI payments, while only 52% were aware of the proposed MDR framework.


UPI adoption was highest in Tier 1 cities, where 82% of vendors accepted digital payments, compared with 66% in Tier 2 and 64% in Tier 3 cities.

Awareness of the proposed charges also varied by city category. Around 66% of vendors in Tier 1 cities knew about the proposal, against 55% in Tier 2 and 47% in Tier 3. Among vendors accepting UPI, 64% were aware of the proposed charges, compared with 26% of those who did not use the payment system.

However, awareness did not necessarily mean vendors understood whether the charges would apply to them. Among those aware of MDR, 48% in Tier 1, 46% in Tier 2 and 33% in Tier 3 believed they would be subject to the charges.

The proposed framework could also affect the adoption of digital payments. About 53% of vendors in Tier 1 cities and 45% each in Tier 2 and Tier 3 said they would reduce their acceptance of UPI if MDR were introduced.

Some vendors also indicated they might pass on the additional costs to customers, despite regulations prohibiting merchants from adding MDR to customer bills. Around 30% of Tier 1 vendors said they would pass on the charges, compared with 14% in Tier 2 and 19% in Tier 3.

The likelihood of passing on the cost was higher among vendors who had already faced supplier surcharges. About 30.8% of this group said they would transfer the additional expense to customers, against 16.2% among those who had not encountered such charges.

CAF cautioned that exemptions for small merchants at the retail level may not protect them from additional costs incurred during wholesale procurement. Such supplier surcharges could put pressure on vendors' margins, encourage cash transactions and undermine digital payment adoption, transaction transparency and access to formal credit.

The centre recommended conducting limited pilot studies before implementing the framework more widely. It also called for monitoring supplier charges, changes in customer pricing and any shift towards cash transactions. An independent assessment of UPI operating costs was also recommended to help determine how these expenses should be shared.

Announced in September 2026, the proposed framework provides for a 0.4% charge on transactions exceeding Rs 2,000, while exempting small merchants receiving up to Rs 1 lakh a month through QR payments. The National Payments Corporation of India (NPCI) postponed the planned October 15 rollout until after Diwali. A revised implementation date has not yet been announced.

(With TOI inputs)