A proposal to bring MDR into UPI payments has many users worried about their cashback. According to reporting by The Economic Times, people are asking if those small rewards could disappear.
The short answer is that nothing is final yet. If shops start paying a fee, apps may give less cashback. Your UPI payment should still work the same way.
Key takeaways
- MDR is a small fee a shop pays when you pay digitally.
- UPI has had zero MDR for shop payments since 2020.
- Cashback may shrink if the fee returns, but it isn't certain.
- Shops could also pass the fee on to you through prices.
- It's a proposal, so there's no need to change habits now.
How MDR works in simple terms
MDR stands for merchant discount rate. It's a small cut a shop pays each time you pay by card or app. The cut is shared between the bank, the card network and the payment company.
Card payments carry MDR today. UPI payments to shops have had no MDR since January 2020. The government has instead backed banks with incentive money to keep UPI running.
Cashback on UPI mostly comes from app promotions. It doesn't come straight from the shop's fee. So the link between MDR and cashback is loose.
Still, a fee changes the money flow. Banks and apps could earn more. Or shops could lose margin. Either one can change how generous offers are.
What changes for you: a worked example
The numbers below are only an illustration. They aren't from the proposal. Say you pay ₹1,000 at a store and the shop pays a 0.3% fee. That's ₹3 on the sale.
Now think of ₹20,000 in UPI spending a month. At 0.3%, the shop pays ₹60 a month on your purchases. A small shop with thin profits may feel that.
| Example fee | Fee on ₹1,000 | Fee on ₹20,000 a month |
|---|---|---|
| 0% (today) | ₹0 | ₹0 |
| 0.3% | ₹3 | ₹60 |
| 0.5% | ₹5 | ₹100 |
| 1% | ₹10 | ₹200 |
If you earn about ₹30 a month in cashback, a cut might cost you a few rupees. A price rise at shops could cost you more than that. Use the EMI calculator if you convert big card bills into EMIs, since small costs add up there too.
Who is affected
Small shopkeepers may feel it most. They run on thin margins and take many small payments. A fee on each one adds up fast.
Regular UPI users who chase offers may see fewer rewards. People who pay only a few bills a month will barely notice. Payment apps may also change how they earn money.
Banks could gain, since they've long said that running UPI costs money. Our news hub tracks how this develops.
What to do now
You don't need to act today. A proposal can change or never become a rule. A few calm steps are still sensible.
- Check how much cashback you really earn in a month.
- Don't pick a payment app only for cashback.
- Keep an eye on shops that start adding a surcharge.
- Ask a shop before you pay if there's an extra fee.
- Follow official RBI and government notices for the final word.
Frequently asked questions
Will UPI cashback stop if MDR comes?
Not necessarily. Cashback comes from app offers, so it depends on what apps decide. It may get smaller, but nothing has been confirmed.
Will I pay a fee on UPI payments?
The proposal talks about a fee on merchants, not on you. A shop could still raise prices to cover it. That's why it's worth watching.
Is UPI free right now?
For most shop payments, yes. UPI has had zero MDR since 2020. Always check the latest rules from the RBI before you assume anything.
BankCreds analysis
The cashback loss is likely small
Most people earn only a few rupees of UPI cashback a month. Say you get ₹30 a month. That's ₹360 a year. A change in offers would cost you about that much, not more.
The bigger risk is higher prices at small shops. If a shop pays 0.3% on every sale, it may add that cost to what you pay. A family spending ₹15,000 a month at such shops could pay about ₹45 more.
Don't over-read the headline. A proposal isn't a rule, and UPI itself isn't being switched off. Don't change how you pay this week. Watch which shops start asking for cash instead. That's the first real sign that fees are biting.
This section is BankCreds' own assessment of what the development means for Indian borrowers and savers. It is independent commentary, not part of the source reporting above.
Sources & references
- The Economic Times — originating report https://m.economictimes.com/wealth/save/upi-charges-above-2000-mdr-explained/using-a-rupay-credit-card-on-upi-read-this/slideshow/135787928.cms
- Reserve Bank of India — Regulator of payment systems and UPI rules https://www.rbi.org.in/
- Press Information Bureau — Government announcements on UPI incentives and zero MDR https://www.pib.gov.in/
Source links are shown as plain text, not clickable links. Copy a URL into your browser to read the original report.
Editorial note & disclaimer
How this was reported. The development above is attributed to the source or sources listed. BankCreds does not independently verify a third party's reporting; where a figure or a regulatory position is stated as fact, it is either attributed or drawn from the regulator's own published material. Everything under "BankCreds analysis" is our own assessment.
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Not financial advice. This article is general information for an Indian audience. It is not investment, tax, credit or insurance advice, takes no account of your circumstances, and BankCreds is not a lender, broker, distributor or advisor. Consider speaking to a SEBI-registered investment adviser or a qualified professional before acting.
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