From buying vegetables at a roadside stall to picking up a quick snack, UPI payments have become a regular part of everyday shopping. For small vendors, digital payments offer a convenient way to collect money without handling cash for every sale. However, proposed charges on certain UPI transactions could add to their business costs, leaving many vendors considering a return to cash payments. A new study highlights how the move could also affect small businesses and the prices customers pay.
Around 67% of surveyed street vendors accept UPI payments, while only 52% are aware of the proposed Merchant Discount Rate (MDR) framework. Between 45% and 53% said they would reduce UPI acceptance if the proposed charges were introduced. These findings are part of UPI Utilisation and MDR Awareness Among Street Vendors, a report by the Centre for Analytical Finance (CAF) at the Indian School of Business (ISB), which examines how the proposed charges could affect small businesses.
The research is based on a survey of 722 street vendors across 14 States and Union Territories and 64 urban local bodies. It examines how vendors use digital payments, their awareness of the proposed charges and the possible impact on their day-to-day business activities.
Announced in September 2026, the proposed framework provides for a 0.4% charge on transactions above Rs 2,000, while exempting small merchants receiving up to Rs 1 lakh a month through QR-based payments. The National Payments Corporation of India (NPCI) postponed its implementation, originally scheduled for October 15, on October 13 until after Diwali. A fresh implementation date is yet to be announced.
UPI adoption varies across cities, with 82% of vendors in Tier 1 cities accepting digital payments, compared with 66% in Tier 2 and 64% in Tier 3 cities. Awareness of the proposed charges also differs, with 66% of vendors in Tier 1 cities having heard about MDR, against 55% in Tier 2 and 47% in Tier 3.
However, knowing about the proposed charges does not necessarily mean vendors understand whether they will be affected. Among those who had heard about MDR, 48% of vendors in Tier 1 cities, 46% in Tier 2 and 33% in Tier 3 believed the charges would apply to them.
Around 53% of vendors in Tier 1 cities and 45% each in Tier 2 and Tier 3 said they would reduce UPI acceptance if MDR were introduced. The additional cost could also affect customer prices, as some vendors indicated they would pass it on. Nearly 70% of surveyed vendors make supplier payments exceeding Rs 2,000 in a single transaction, while 10.4% said their suppliers had already demanded extra charges for UPI payments in the 10 days preceding the survey.
The CAF study highlights a gap between the proposed exemptions for small merchants and the costs they may face while purchasing goods. Although certain small merchants may be exempt from charges on payments received through QR codes, they could still face additional expenses if suppliers pass on transaction costs. For vendors working with limited margins, these expenses could influence their choice of payment methods.
To address these concerns, CAF recommends introducing the proposed charges through limited pilot studies before a wider rollout. It also calls for monitoring supplier demands, changes in customer prices and any movement towards cash payments. An independently reviewed assessment of the actual costs of operating UPI could further help determine how these expenses should be shared.
The findings bring attention to the role small vendors play in India’s digital payments ecosystem. While customers have become accustomed to scanning QR codes for everyday purchases, the continued use of UPI also depends on whether small businesses find it affordable. Any additional cost could influence not just how vendors receive payments but also how they purchase goods and set prices for customers.
Got questions or experiences to share? Comment below or connect with me on Instagram@samuelmjosh and LinkedIn: https://www.linkedin.com/in/samuel-joshua-maddela-ab210b1b9
