An IIT Bombay report has raised a cautionary flag over the proposed merchant discount rate, or MDR, framework for Unified Payments Interface transactions, warning that the policy could undermine public trust if implemented in its current form. The report argues that UPI's success rests not only on convenience and scale, but also on a deeply embedded public perception that the platform is simple, low-cost and broadly neutral for users and small merchants.
The warning comes at a sensitive moment for India's digital payments ecosystem, where UPI has become the default transaction layer for millions of consumers, retailers and mobility-linked businesses. In sectors such as automotive retail, electric vehicle charging, fleet services and urban mobility, the platform has helped reduce cash dependence and speed up settlement. Any change that is perceived as increasing transaction costs, even indirectly, could have wider behavioural consequences than policymakers intend.
Trust At The Core
The report's central concern is not merely the economics of MDR, but the psychology of adoption. UPI has grown into a mass-market public utility because users have been conditioned to believe that payments are instant, reliable and free at the point of use. The IIT Bombay study cautions that if the proposed framework is seen as opening the door to charges, pass-through costs or uneven merchant treatment, it could trigger negative sentiment among consumers who have come to view UPI as a public good.
That risk is especially relevant in India, where digital payment policy has often balanced financial inclusion objectives against the commercial realities of banks, payment service providers and merchants. The report suggests that a poorly designed MDR structure could create confusion over who pays, when charges apply and whether the burden will eventually be shifted to end users. Even the perception of such a shift, it warns, may be enough to weaken trust.
For the mobility economy, the implications are significant. Vehicle purchases, servicing, charging, toll-linked payments and app-based transport transactions increasingly rely on UPI for speed and convenience. If merchants in these categories begin to treat UPI as a costlier channel, they may nudge customers toward alternate payment methods or impose surcharges in subtle ways, undermining the frictionless experience that has driven adoption.
Policy Design Matters
The report effectively calls for rationalisation rather than rejection of the MDR idea. It does not argue that the payments ecosystem should remain economically unsustainable; rather, it stresses that any framework must be carefully designed to preserve confidence, avoid user backlash and protect the credibility of India's digital public infrastructure.
That distinction matters because UPI is not just another payments product. It is a national-scale platform whose adoption has been supported by policy, interoperability and a strong public narrative around inclusion and convenience. A framework that appears to commercialise the system without clear safeguards could be interpreted as a departure from that narrative. In a market where trust is a core asset, that could prove costly.
The report's caution also reflects a broader policy challenge: how to ensure that payment infrastructure providers are compensated fairly without diluting the user experience that made the system successful in the first place. The answer, the study implies, lies in transparency, targeted calibration and a clear communication strategy that prevents misinformation from filling the gap.
For regulators and industry stakeholders, the message is straightforward. Any MDR framework for UPI must be introduced with precision, not haste. The objective should be to sustain the economics of the ecosystem while preserving the public confidence that has made UPI one of India's most consequential digital policy successes.
Wider Mobility Impact
The warning is particularly relevant to the automotive and EV ecosystem, where digital payments are increasingly embedded into everyday transactions. From showroom bookings and service invoices to charging-station payments and subscription-based mobility services, UPI has become a critical layer of convenience. If users begin to associate UPI with added charges or reduced value, adoption in these adjacent sectors could slow, especially among price-sensitive consumers.
The report therefore lands as both a policy caution and a market signal. It suggests that the future of UPI monetisation cannot be separated from the platform's social legitimacy. In India's digital economy, trust is not an abstract concept; it is the operating system that keeps adoption high and transaction volumes growing. The IIT Bombay report argues that any MDR reform must protect that foundation first.