An IIT Bombay report has warned that the proposed merchant discount rate, or MDR, framework for Unified Payments Interface transactions needs careful rationalisation to avoid undermining public trust in India's most widely used digital payments platform. The report argues that if the framework is introduced in its present form, it could trigger negative sentiment among users and merchants alike, potentially weakening one of the central pillars of India's digital public infrastructure.
The caution comes at a sensitive moment for the country's payments ecosystem. UPI has become synonymous with instant, low-cost transfers, powering everything from small retail purchases to high-frequency mobility and automotive-related transactions, including fuel payments, EV charging, parking, tolls and app-based mobility services. Its success has rested not only on convenience and scale, but also on the perception that digital payments can remain simple, affordable and broadly accessible. Any policy shift that appears to add friction or hidden cost risks being interpreted by consumers as a retreat from that promise.
Trust At Stake
The report's central concern is not merely the level of merchant charges, but the broader behavioural impact of introducing MDR in a system that has been marketed and adopted as near-frictionless. In payment systems, trust is often more fragile than transaction volumes suggest. Users may tolerate minor changes in fees if they are clearly explained and perceived as fair, but they are far less forgiving when a platform associated with zero-cost convenience begins to feel monetised in ways that are not transparent.
For UPI, that risk is amplified by scale. The platform has become embedded in daily life across income groups and geographies, and its public legitimacy has been built through repeated use rather than formal regulation alone. The IIT Bombay report suggests that any MDR design must therefore be calibrated not just for revenue or cost recovery, but for public psychology. If consumers begin to associate UPI with charges, merchant resistance or inconsistent pricing, the system could face reputational damage that would be difficult to reverse.
Policy Balance Needed
The report effectively places policymakers at the intersection of three competing priorities: sustaining the digital payments ecosystem, ensuring merchant acceptance, and preserving consumer confidence. Payment networks require funding for infrastructure, fraud controls, settlement systems and innovation. Yet in India, UPI has also been treated as a public digital utility, and that framing has shaped expectations around affordability and universal access.
That tension is especially relevant for sectors such as automotive and mobility, where digital payments are increasingly integral to everyday transactions. EV charging networks, ride-hailing platforms, shared mobility operators and urban parking systems all depend on seamless payment flows. If merchants in these segments perceive MDR as too high, they may pass costs on to users, discourage UPI acceptance or seek alternative payment methods. The result could be a fragmented experience that slows adoption in precisely those sectors where digital convenience is most valuable.
The report's warning also reflects a broader policy lesson: digital infrastructure can lose public goodwill quickly if users believe the rules are changing without adequate consultation or explanation. UPI's success has been built on trust in the system's simplicity, interoperability and low cost. A poorly calibrated MDR framework could invite criticism that the state is monetising a public utility without protecting the consumer experience.
Mobility Sector Implications
For the automotive and mobility ecosystem, the stakes are practical as well as reputational. The sector is increasingly dependent on digital transactions for charging, servicing, subscriptions and on-demand transport. Many of these use cases involve low-ticket, high-frequency payments where even small charges can alter merchant economics. If the MDR framework is not rationalised, businesses may respond by nudging customers toward cash, wallets or proprietary apps, undercutting the interoperability that has made UPI so powerful.
The report therefore points to a need for nuanced policy design, not a binary choice between free and fee-based payments. A differentiated framework, transparent communication and safeguards for small merchants could help preserve adoption while addressing sustainability concerns. The central message is that UPI's value lies not only in transaction volume, but in the confidence users place in it. Policymakers, the report suggests, should avoid any move that makes the platform feel less like a public digital rail and more like a contested commercial product.
In a market where digital payments have become a daily habit, sentiment can shift faster than statistics. The IIT Bombay report's warning is that the MDR debate must be handled with unusual care, because the cost of misjudgment may not be measured only in fees, but in the erosion of trust that has taken years to build.