The findings come after the National Payments Corporation of India (NPCI) announced a 0.4% MDR on eligible person-to-merchant (P2M) UPI transactions above ₹2,000 from October 15, 2026.
The MDR will be capped at ₹300 for transactions of ₹75,000 and above.
LocalCircles surveyed 32,796 merchants and businesses across 242 districts to assess how much they would be willing to pay for UPI transactions above ₹2,000. Of the respondents, 48% were from tier-1 districts, 33% from tier-2 districts and 19% from tier-3 and tier-4 districts.
The survey found that 41% of respondents would not bear any MDR, while another 9% said they did not accept UPI payments. Among merchants willing to bear a charge, 15% said they would accept an MDR of up to 0.04%.
A further 5% each said they would bear up to 0.1%, 0.2% and 0.5%, while 8% said they could bear up to 0.25% and 12% said they could bear up to 1%.
LocalCircles said 50% of respondents were willing to bear an MDR of at least 0.04%. However, the share declined as the rate increased: 35% said they could bear at least 0.1%, 25% at least 0.25% and 17% at least 0.4%.
This means that among merchants who accept UPI, a majority of those surveyed said they would not be willing to absorb an MDR at the newly announced 0.4% rate.
What does 0.4% MDR mean for merchants?
At a 0.4% MDR, a merchant receiving a ₹3,000 UPI payment would pay ₹12 as MDR, while a ₹50,000 transaction would attract ₹200. For transactions of ₹75,000 and above, the MDR is capped at ₹300 under NPCI’s framework.
The charge is an MDR paid by the merchant-side ecosystem and is not a fee charged directly to consumers. NPCI has said UPI person-to-person (P2P) payments will remain free, while UPI payments up to ₹2,000 will also remain outside the MDR framework.
The government had notified on September 14 that UPI payments up to ₹2,000 would remain free of direct or indirect charges from banks and payment system providers. The notification created the legal framework for charges on transactions above that threshold.
Why the MDR issue matters
UPI has operated with zero MDR on merchant payments since 2020, making the introduction of a charge on higher-value transactions a significant change for businesses that rely heavily on digital payments.
The policy also creates a difference between the cost merchants are now required to absorb under the new framework and the levels indicated in the LocalCircles survey. While half of the surveyed merchants said they could accept an MDR of at least 0.04%, only 17% said they would accept 0.4% or more.
The survey therefore indicates that the rate at which the new MDR has been set is substantially higher than the level that many surveyed merchants said they were prepared to absorb.
The impact on merchants will depend on the nature and size of their businesses, their payment mix and their ability to absorb payment-processing costs. Whether merchants change prices, encourage other payment methods or absorb the cost will depend on individual business practices; the survey itself does not establish how merchants will respond after the MDR takes effect.
NPCI has said the MDR revenue will support the UPI ecosystem, including infrastructure, cybersecurity, innovation and customer service. The payment operator has also said the framework is intended to keep small-value everyday UPI transactions outside the charge.
The change comes as UPI continues to operate at a very large scale. UPI processed about 24.5 billion transactions worth nearly ₹29.9 lakh crore in August 2026, according to NPCI data cited in its FAQs.
