NEW DELHI: India’s new merchant discount rate (MDR) on high-value UPI transactions is set to raise payment costs for retailers just as the festive shopping season gathers pace, though the impact is likely to vary sharply with the size of the shopping basket.
Large-format retailers selling electronics, apparel, jewellery and sports goods, transactions above Rs 2,000 are common, and UPI is increasingly being used for such purchases. Smaller-ticket businesses and online platforms, by contrast, are likely to see a more limited impact because a larger share of their transactions falls below the threshold.
At electronics retailer Vijay Sales, about 15% of total transactions are paid through UPI, according to director Nilesh Gupta. Customers routinely use UPI for purchases ranging from Rs 5,000 to Rs 20,000, he said.
“Now the cost will go up. It was a zero cost to us so far,” Gupta said. Vijay Sales already absorbs credit-card charges and will take a similar approach with UPI, he added.
That could put the spotlight on how retailers and consumers respond during the festive season. Retail executives and analysts expect merchants and e-commerce platforms to push card-linked discounts, cashback offers and EMI financing more aggressively, particularly for smartphones and other electronics.
Such offers could shift some high-value purchases towards cards, allowing consumers to combine payments with financing and promotional benefits. It would also keep those transactions outside the UPI MDR net, retail executives said.
The difference in transaction values between UPI and card payments is already pronounced.
Marketplace UPI transactions rose 48% year-on-year to 180.7 million in July 2026, while their value increased 27% to Rs 10,224 crore, according to Datum Intelligence. The average transaction value consequently fell 14% to Rs 566.
Online card transactions, meanwhile, rose 24.1% to 335 million, while spending increased 7.5% to Rs 1.48 lakh crore in the same period. The average card transaction stood at Rs 4,413, according to Datum’s analysis of RBI data, although that was down from Rs 5,253 in January 2025.
“Basket size is going to determine who feels the pain,” said Karan Taurani, executive vice-president at Elara Capital, pointing to the sharp difference in exposure across retailers and consumer internet firms.
Elara estimates Avenue Supermarts, which operates DMart, will face the largest absolute MDR cost among the companies it tracks, at Rs 127 crore in FY27. That would be equivalent to 2.1% of estimated FY27 Ebitda of Rs 6,138.5 crore, the brokerage said.
Nykaa is more exposed relative to its earnings because its average order values are closer to the Rs 2,000 threshold. Elara estimates its MDR cost at Rs 29.9 crore, or 2.6% of FY27 Ebitda. Trent’s estimated cost is Rs 21.7 crore.
Food-delivery and quick-commerce companies, meanwhile, are expected to face substantially smaller hits because of their lower order values. For Eternal, Elara estimates the MDR cost at Rs 18.2 crore, equivalent to 0.6% of FY27 consolidated Ebitda. Swiggy’s estimated cost is Rs 8.6 crore, it said.
The issue is particularly relevant for smaller retailers, said Kumar Rajagopalan, chief executive officer of the Retailers Association of India (RAI). Large retailers have the scale to negotiate payment rates with banks and payment partners; smaller merchants do not.
“The very large guys will start negotiating,” Rajagopalan said. “The medium and small are going to face the brunt of this charge.”
Large retailers also have little appetite for returning to cash, given the cost of handling and reconciliation. Gupta said Vijay Sales would continue to encourage UPI despite the additional expense.
The bigger question is how retailers respond if MDR becomes a recurring cost. Companies could seek to absorb the expense through lower margins or recover part of it through other revenue streams, including advertising, platform fees, operational efficiencies and higher monetisation, analysts said.
For consumers, the change may be less visible in the payment itself than in the offers surrounding it. A Rs 10,000 smartphone purchase, for instance, could increasingly come with a card cashback offer or EMI incentive, while UPI remains the easier choice for smaller baskets.
The festive season could therefore provide an early test of how the new MDR changes payment economics in Indian retail. UPI may continue to dominate daily, lower-value commerce, while retailers have a greater financial incentive to promote cards for purchases above the Rs 2,000 threshold.
Source: The Financial Express
