Government May Offer UPI Discounts to Boost Digital Payments: Here's What It Means for You

Introduction

In a significant step toward enhancing digital payments in India, the Ministry of Consumer Affairs is considering a policy that would allow consumers to receive direct discounts on transactions made via Unified Payments Interface (UPI). This comes as a potential incentive tied to UPI’s zero Merchant Discount Rate (MDR) regime, making it even more attractive than using credit or debit cards.

Why UPI May Soon Become Cheaper Than Credit Cards

Right now, merchants pay a 2–3% MDR fee on credit card transactions. Though consumers don’t see this charge directly, it’s often baked into product pricing or passed on via convenience fees.But UPI payments-under the zero MDR policy-don’t incur this cost. The new plan under consideration would pass this saved MDR back to consumers as an upfront discount when they choose to pay via UPI. For example:A ₹1,000 purchase made using a credit card may cost the merchant ₹20 in MDR. If a consumer pays via UPI instead, that ₹20 could be offered as a discount, effectively making UPI 2% cheaper.

How This Boosts UPI Adoption in India

This initiative could drive:


• Higher consumer adoption of UPI for daily payments


• Lower costs for both consumers and small merchants


• Greater trust in UPI as a digital payment channel


• A stronger push for India’s cashless economy vision

These outcomes align with the government’s broader Digital India mission and the NPCI’s (National Payments Corporation of India) strategy to build a robust and inclusive payment infrastructure.

Concerns Over Zero MDR Sustainability

While consumer benefits are a big plus, payment service providers and fintech companies have flagged sustainability issues around zero MDR. The Payments Council of India and other stakeholders argue:

• Zero MDR reduces revenue for banks and fintechs


• Maintaining UPI’s high uptime and reliability requires operational funding


• A tiered MDR structure-where large merchants pay nominal MDR-may be more sustainable

This new discount approach could be a balanced solution-offering benefits to consumers while also revisiting MDR policies for larger merchants.

What This Means for You as a Consumer

If the proposal is implemented, here’s how you benefit:

• Direct discounts for paying via UPI


• No hidden charges compared to credit card payments


• Encouragement to shift toward safer, real-time digital payments

From online shopping and bill payments to buying groceries, every transaction via UPI could mean real savings in your wallet.

India is already a global leader in real-time digital payments, thanks to UPI. If the government moves forward with its plan to pass zero-MDR savings to consumers, it could transform how India pays-making UPI the default choice across sectors.