A proposed charge on larger UPI transactions could weaken digital payment adoption among street vendors, not because most vendors would necessarily pay the levy directly, but because their suppliers may pass the cost into wholesale purchases. That finding from an Indian School of Business survey points to a gap in how India’s digital-payment rules account for the economics of informal urban livelihoods.
The study, titled ‘UPI Utilisation and MDR Awareness Among Street Vendors’, surveyed 722 vendors across 14 states and Union Territories, covering 64 urban local bodies between September 24 and October 10. It found that 67 per cent of the vendors accepted UPI payments, while only 52 per cent were aware of the proposed Merchant Discount Rate framework.
Under the proposal announced in September, a 0.4 per cent charge would apply to UPI transactions above Rs 2,000. Small merchants receiving up to Rs 1 lakh a month through QR payments would be exempt. However, the survey suggests that a retail-level exemption may not prevent costs from entering the vendor’s business through procurement transactions.
The distinction matters because street vendors are both sellers and buyers. They may receive many small customer payments below the proposed threshold, but often purchase stock from suppliers in transactions above Rs 2,000. The proposed framework, as described in the study, therefore creates a possible mismatch between the point at which a vendor is protected from the charge and the point at which the vendor incurs a cost.
Nearly 70 per cent of the surveyed vendors made supplier payments exceeding Rs 2,000 per transaction. About 10.4 per cent said suppliers had demanded additional charges for UPI payments during the 10 days before the survey. Every respondent said they would switch to cash if suppliers imposed additional charges.
Anand Sudhakaran, a co-author of the study, illustrated the exposure through a procurement example. If a vendor purchases goods worth Rs 15,000 from a supplier, a 0.4 per cent MDR would amount to around Rs 60. The study estimated that for a vendor earning a daily net margin of Rs 1,000, such a charge would represent about six per cent of the profit.
That calculation places the issue within the everyday economics of street vending. A charge that appears small when expressed as a percentage of a transaction can become significant when measured against the vendor’s net daily earnings. The cost is also incurred before the goods are sold, meaning the vendor must either absorb it, pass it on to customers or avoid the payment channel.
The survey found that 53 per cent of vendors in Tier 1 cities and 45 per cent each in Tier 2 and Tier 3 cities would reduce their acceptance of UPI payments if charges were introduced. The similar figures across Tier 2 and Tier 3 cities suggest that the concern is not limited to the largest metropolitan markets, even though the study does not establish why vendors in different city categories responded in similar ways.
The results also show how supplier behaviour could influence customer-facing prices. Among vendors who had faced additional charges from suppliers, 30.8 per cent said they would pass the cost on to customers. This compared with 16.2 per cent among vendors who had not faced such charges.
The difference does not prove that every supplier charge will produce a price increase. It does, however, show that vendors who have already experienced such demands are more likely to consider transferring the cost. For urban consumers, the relevant effect may therefore appear not as a visible payment fee but as a change in the price of food, goods or services sold on the street.
The proposed framework also exposes an information problem. Only 52 per cent of the surveyed vendors were aware of the MDR proposal, despite the potential effect on their supplier payments. A vendor may understand that customer-facing UPI receipts fall below the threshold or remain within an exemption, while not recognising that the business’s procurement payments could create a separate cost.
This is the institutional gap identified by the survey: the transaction rules may classify the merchant according to receipts, while the merchant’s business operates through two different payment relationships. One is with the customer buying a product. The other is with the supplier from whom the product is procured. A policy that evaluates only the first relationship may not capture the full cost structure of the business.
Prof. Prasanna Tantri, executive director of the ISB’s Centre for Analytical Finance, said the current accounting focuses on cost without fully showing the benefits of digital-payment data. The observation is relevant to street vendors because digital transactions can generate records of sales and payment flows, but the supplied study does not quantify those benefits or compare them with the proposed operating costs.
The survey’s findings also complicate the idea that UPI adoption is determined only by customer preference. Vendors may accept digital payments because customers use them, but their continued acceptance depends on the cost of receiving, making and managing payments across the supply chain. If supplier-side charges rise, the vendor’s decision is shaped by the entire business cycle rather than by the individual sale at the QR code.
This is especially important for street vendors because their procurement model often involves frequent purchases of stock in bulk. The study does not provide a breakdown by commodity, city or supplier type, so it cannot establish whether the effect would be greater for food vendors, retailers or other categories. It does establish that a large share of respondents make supplier payments above the proposed threshold and that respondents reported a strong willingness to return to cash if additional charges were imposed.
The proposed October 15 rollout was postponed by the National Payments Corporation of India until after Diwali, with a new date yet to be announced according to the report. That delay leaves time for the implementation framework to be assessed against the way small urban businesses actually buy and sell goods.
The ISB researchers recommended pilot studies and independent assessments of UPI operating costs. They also called for monitoring supplier-imposed charges, price increases and any shift towards cash transactions. These measures would examine the policy beyond the formal question of whether a small merchant is exempt from the levy.
The larger urban question is whether digital-payment infrastructure is being evaluated at the point of transaction or across the full livelihood system that supports informal commerce. Street vendors are not only payment recipients. They are also buyers, employers in some cases, and links in local supply chains. Their response to a payment charge could affect business margins, customer prices and the traceability of transactions.
The survey does not establish that the proposed MDR framework will cause a nationwide return to cash. It does show a material risk of reduced UPI acceptance among vendors, particularly if suppliers impose additional charges. The next evidence will depend on how the framework is implemented, whether supplier charges are monitored, and whether pilot assessments measure both the costs and the benefits of digital payments for small urban businesses.
