UPI payments above Rs 2,000 could see a shift towards cash, credit cards, debit cards and bank transfers if merchants pass on a proposed 0.4% merchant discount rate to customers from October 15. A LocalCircles survey found that only 14% of users would continue using UPI and bear the additional cost themselves, while the rest indicated they would consider other payment options, avoid the purchase or delay it.

The survey received more than 67,000 responses from UPI users across 291 districts, with 31,206 responses specifically covering what consumers would do if merchants charged an additional fee. Cash was the most common alternative, with 27% saying they would pay in cash, while 26% would switch to credit cards and 14% to debit cards. Another 4% would use bank transfers, NEFT or IMPS, while 9% would seek another payment option without an additional charge.

The proposed MDR applies to person-to-merchant UPI payments above Rs 2,000, while payments up to Rs 2,000 and person-to-person transfers remain outside the charge. The government has said the MDR is not a consumer fee and that merchants should not pass the cost on to customers. Small merchants receiving up to Rs 1 lakh a month through UPI QR codes are also exempt, with the government saying around 96% of merchant transactions will not be affected.

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A separate question in the survey indicated that 76% of respondents could move larger payments away from UPI if using it resulted in an additional cost. Among 37,654 responses, 26% said they would use credit cards most often, another 26% would use cash, 13% would choose debit cards and 11% would use bank transfers, NEFT or IMPS. Only 20% said UPI would remain their most-used option for purchases above Rs 2,000 under such circumstances.

Merchants have also expressed concerns about absorbing the additional cost. A separate LocalCircles survey covering more than 32,000 businesses across 242 districts found that only 17% were willing to bear a 0.4% MDR on UPI payments above Rs 2,000. Forty-one% said they would not bear any MDR, while 9% said they did not accept UPI. At 0.4%, the MDR on a Rs 5,000 transaction would amount to Rs 20, while a Rs 50,000 payment would attract Rs 200 before applicable GST on the MDR.

The proposed change comes as UPI continues to handle a large volume of merchant payments. In August 2026, UPI processed a record 24.51 billion transactions worth Rs 29.82 lakh crore, including 15.51 billion merchant transactions worth Rs 8.95 lakh crore. Payments above Rs 2,000 accounted for 67% of the value of merchant payments. The government has said consumers should not be charged the MDR, while efforts are being made with banks to monitor compliance. The October 15 rollout will determine how merchants and consumers respond to the new framework for higher-value UPI payments.

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