The Reserve Bank of India's decision to allow a merchant discount rate, or MDR, on UPI transactions above Rs 2,000 from October 15 has reopened a long-running debate over the economics of India's digital payments boom. But RBI Deputy Governor Shirish Chandra Murmu has pushed back against the idea that a fee on larger UPI payments will automatically revive cash usage, saying the relationship between digital adoption and currency in circulation is more complex than a simple substitution story.
Murmu's remarks matter because they land at the intersection of payments policy, merchant economics and consumer behaviour in one of the world's most closely watched digital payment markets. UPI has become the backbone of everyday retail transactions in India, including in mobility-linked segments such as fuel, vehicle servicing, EV charging and small-ticket auto purchases. Any change in the cost structure of digital acceptance is therefore likely to be scrutinised not only by banks and fintechs, but also by dealerships, fleet operators, charging networks and small merchants that depend on frictionless payments.
Fee Debate Returns
Murmu said the introduction of MDR should not be read as a trigger for a cash surge. His argument rests on a broader observation: digital transactions can expand even as cash in circulation also rises. In his view, cash is not merely a competing payment rail; it also functions as a store of value, which means households and businesses may continue to hold currency even while using digital modes more frequently.
That framing is important because it challenges a common policy assumption that digital growth and cash usage move in opposite directions. India's experience over the past several years has often shown the contrary. UPI volumes have climbed sharply, yet currency with the public has remained elevated, reflecting precautionary holdings, informal-sector needs and the enduring role of cash in parts of the economy. Murmu's comments suggest the RBI is aware that payment behaviour is shaped by multiple motives, not just transaction convenience.
The planned MDR on UPI payments above Rs 2,000 is also likely to be read as a recalibration rather than a retreat from digitalisation. For merchants, MDR is the cost of accepting digital payments, typically borne by the business or passed on indirectly through pricing. For payment providers, it is a key revenue source that helps sustain infrastructure, fraud controls and customer support. The policy challenge lies in balancing the economics of acceptance with the public interest in keeping digital payments cheap and ubiquitous.
Cash And Digital Coexist
Murmu's comments also underline a broader truth about India's payments landscape: the system is not moving in a straight line from cash to digital, but toward coexistence. Consumers may use UPI for speed and convenience while still keeping cash for emergencies, bargaining, small informal purchases or as a liquidity buffer. Businesses, especially in mobility and automotive ecosystems, often accept both because each serves a different purpose.
For the automotive and EV sectors, the implications are practical. Vehicle sales, servicing, insurance premiums, spare parts and charging payments increasingly rely on digital rails, but many of these transactions involve higher ticket sizes where merchant acceptance costs matter. If MDR is applied to larger UPI payments, some merchants may reassess how they route transactions, but that does not necessarily mean a wholesale return to cash. Larger businesses are more likely to absorb, pass on or negotiate around the fee than abandon digital acceptance altogether.
The RBI's messaging also appears designed to prevent overreaction in the market. Any perception that UPI is becoming expensive could unsettle merchants and consumers, especially in segments where digital payment adoption is still maturing. By stressing that cash circulation can rise for reasons unrelated to payment preference, Murmu is signalling that the central bank sees the monetary system through a wider lens than payment volumes alone.
Policy Signal, Not Retreat
The October 15 implementation date gives merchants, payment companies and banks a short runway to prepare. The larger question is whether the fee structure will remain narrowly targeted at higher-value transactions or evolve further as the RBI and the government test the limits of a zero-fee digital ecosystem. For now, Murmu's intervention suggests the central bank is trying to normalise the idea that digital payments can be both public infrastructure and a commercial service.
That is a significant policy shift in a country where UPI has been promoted as a national digital utility. If MDR is introduced carefully and transparently, the RBI appears to believe it can preserve the scale of digital adoption without forcing a binary choice between cash and code. The message from the deputy governor is clear: India's payment future is not a zero-sum contest, and the presence of more cash in circulation does not automatically mean less digital progress.