The Reserve Bank of India's Deputy Governor Shirish Chandra Murmu has pushed back against a widely discussed assumption in the payments market: that the introduction of a merchant discount rate, or MDR, on UPI transactions above Rs 2,000 will inevitably push consumers and merchants back toward cash. Speaking in the context of the policy change due to take effect on October 15, Murmu said the relationship between digital payments and cash usage is more complex than a simple substitution story.
Cash And Digital Coexist
Murmu's remarks come at a sensitive moment for India's fast-evolving payments ecosystem, where UPI has become the dominant retail digital rail while cash remains deeply embedded in everyday commerce. His core argument was that the presence of a fee on certain transactions does not automatically mean users will abandon digital payments. Instead, he pointed to a broader pattern seen in India and other large economies: digital transaction volumes can rise sharply even as currency in circulation also increases.
That observation matters because it challenges a common policy narrative. In public debate, MDR is often framed as a friction that could discourage merchants from accepting digital payments, especially in price-sensitive segments such as small retail, mobility services, and vehicle-related payments. But Murmu suggested that cash is not merely a fallback when digital systems become expensive. It also functions as a store of value, a liquidity buffer, and a preferred medium in parts of the economy where immediacy, anonymity, or habit still matter.
For the automotive, EV and mobility sectors, the implications are practical. These industries increasingly rely on UPI for everything from charging sessions and parking to service invoices, toll-linked payments, and small-ticket retail at dealerships and workshops. If MDR is introduced only above a defined threshold, the immediate effect may be limited to larger-value merchant transactions rather than routine low-value consumer payments. That distinction could help preserve UPI's convenience in everyday mobility use cases while allowing the payments ecosystem to test a more commercially sustainable model.
Policy Meets Market Reality
Murmu's comments also underscore a broader policy balancing act. India has spent years encouraging digital adoption through interoperability, low-cost rails, and widespread consumer familiarity. At the same time, the economics of maintaining high-volume payment infrastructure remain a live issue. The question is not only whether merchants will pay more, but whether the system can support scale without undermining adoption.
The RBI's stance appears to be that modest pricing changes do not necessarily reverse structural digital habits. Consumers who have already integrated UPI into daily life are unlikely to abandon it wholesale because of a merchant fee applied at a higher transaction threshold. Merchants, meanwhile, may absorb some of the cost, pass it through selectively, or adjust acceptance behavior depending on margins and customer expectations.
Murmu's framing is also notable because it treats cash as a durable part of the monetary ecosystem rather than a temporary relic. In India, currency in circulation has often remained resilient even during periods of rapid digital expansion. That resilience reflects not just consumer preference, but also the role of cash in informal commerce, emergency liquidity, and household savings behavior.
For policymakers, the key issue will be whether the October 15 MDR framework is implemented in a way that preserves the momentum of digital adoption while addressing the economics of payment acceptance. For merchants in mobility-heavy categories, the answer may depend on transaction size, customer mix, and the extent to which digital convenience continues to outweigh the cost of acceptance.
What October 15 Means
The immediate market focus now turns to how banks, payment aggregators, merchants, and consumers respond once the new fee structure is in force. Even if the policy does not produce a surge in cash use, it could still influence pricing decisions, acceptance behavior, and the economics of high-value digital transactions.
Murmu's message is ultimately a caution against overreading the impact of MDR. India's payments story, he suggested, is not a zero-sum contest between cash and digital rails. It is a layered system in which both forms of money continue to serve distinct purposes, even as UPI remains the country's most visible symbol of digital finance.