RAI MDR Charge On UPI Creates A Big Risk Of Returning To A Cash Economy In India.

Mumbai, Maharashtra, 16th of September, 2026 : The Retailers Association of India (RAI) has raised concerns over the government’s decision to reintroduce a 0.4 per cent Merchant Discount Rate on UPI person-to-merchant transactions above Rs 2,000 — capped at Rs 300 for transactions of Rs 75,000 and above — warning that the charge could undo years of progress in digital payment adoption among India’s smallest retailers, just as the festive season gets underway.

The framework keeps consumers outside its ambit, but the burden still lands on merchants. For MSME retailers already running on thin margins, that burden creates a straightforward incentive to steer transactions back toward cash.

“Small merchants will now think twice about whether to accept cash or UPI,” said Kumar Rajagopalan, CEO, Retailers Association of India. “During the festive season, a large share of transactions crosses the Rs 2,000 mark, and the moment a fee attaches itself to digital payment, cash becomes the path of least resistance.”
RAI’s concern extends past retailer margins. Every transaction that slips off the UPI rail and back into cash disappears from the formal trail that feeds GST reporting, the opposite of what a decade of digitisation policy has tried to build. “This cuts against the government’s own formalisation agenda,” Kumar Rajagopalan said. “UPI acceptance should be incentivised, not taxed.”

RAI also pushed back on treating all UPI transactions as one category. Most UPI payments draw directly from a savings or current account — the digital equivalent of a debit transaction, carrying none of the interchange cost or credit risk that justifies a fee on credit networks. “We don’t see the case for charging a bank-to-bank UPI payment the way you’d charge for credit,” Rajagopalan said. “Where UPI is linked to a credit line, a fee is easier to defend, because the cost structure genuinely resembles a credit product. We urge that the government should bear the cost of normal UPI transactions since it repays the government with GST and traceable transactions instead of cash transactions.”

That case extends to who ultimately funds the rail itself. “NPCI keeps UPI running for the entire country — RBI or the government should be underwriting that cost, not merchants,” Rajagopalan said. “The state gets a formal, traceable transaction it can tax out of every UPI payment. It should be paying for the enablement, not passing the bill down to the smallest retailer in the chain.”

RAI said it will take up the matter with the National Payments Corporation of India and the Ministry of Finance, pressing for a graded structure that separates debit-linked from credit-linked UPI transactions and pairs any merchant charge with incentives that keep small retailers inside the formal payment system rather than pushing them out of it.

About RAI: The Retailers Association of India is the national body representing India’s retail industry across all channels and formats, from large format and specialty retail to e-commerce, quick commerce, and connected commerce businesses. RAI works with governments, regulators, and industry stakeholders to enable a competitive, innovation-friendly retail ecosystem. Through policy advocacy, industry events, research, and learning programmes, RAI builds the conditions for retail to grow, invest, and create employment at scale. India’s retail future is connected. RAI is building for it.