KKN Gurugram Desk | In a significant development aimed at boosting Unified Payments Interface (UPI) adoption and reducing transaction costs for consumers, the Government of India is working on a plan that would make purchases cheaper when paid via UPI compared to credit card payments.

This upcoming initiative, being considered by the Ministry of Consumer Affairs, could reshape digital transactions by offering direct discounts on UPI transactions, effectively making UPI not just a convenient, but also an economical option for millions of Indians.

Why This Move Matters: UPI vs Credit Card Payments

Currently, when customers pay using a credit card, merchants are charged a Merchant Discount Rate (MDR) — typically around 2–3% per transaction. This MDR is either:

• Absorbed by merchants, reducing their profit margin, or

• Passed on to customers, often with a clear surcharge at billing.

On the other hand, UPI payments do not attract MDR charges, making them cost-effective for merchants and neutral in cost to customers. However, many still prefer credit cards for the reward points or EMI facilities, leading to continued usage of higher-cost payment methods.

The New Proposal: Discounts for UPI Users

According to sources quoted by LiveMint, the Consumer Affairs Ministry is developing a system where the cost benefit of zero-MDR on UPI is passed directly to consumers.

How It Might Work:

If an item costs ₹100 via credit card, the UPI user might only have to pay ₹98, effectively receiving a 2% discount.

This difference will encourage consumers to opt for UPI over credit cards, especially in physical stores and e-commerce platforms where pricing transparency matters.

Benefits of This Plan to Different Stakeholders

1. Consumers:

• Direct financial savings on every transaction

• Encouragement to shift from credit dependency to instant, debit-based payments

• Faster transactions (explained below)

2. Merchants:

• Avoidance of MDR charges

• Greater acceptance of UPI due to increased demand from customers

• Potential to increase footfall by offering UPI-exclusive pricing

3. Government:

• Push towards Digital India goals

• Reducing the burden of card payment infrastructure

• Better financial traceability and lower black-market cash flow

Technical Upgrade: Faster UPI Transaction Time from June 16

The government is also upgrading the UPI transaction processing system, cutting the average transaction time from 30 seconds to just 15 seconds starting June 16, 2025.

This enhancement will ensure:

• Faster merchant settlements

• Reduced payment failures or delays

• Enhanced user experience, especially during high-volume transaction periods like festivals and sales

What Is MDR and Why Does It Matter?

Merchant Discount Rate (MDR):

MDR is the fee that merchants pay to payment service providers or banks for accepting digital payments, particularly credit and debit card payments.

For credit cards, MDR typically ranges from 2–3%. For example:

• A ₹10,000 transaction via credit card may incur up to ₹300 in MDR charges

• This charge is often invisible to consumers but reduces merchant earnings

In contrast, UPI transactions currently have zero or negligible MDR, making them ideal for low-margin businesses and small retailers.

Current Market Behavior: Why Consumers Still Use Credit Cards

Despite UPI being free and fast, many consumers prefer credit cards due to:

• Reward points and cashback programs

• EMI options

• Higher transaction limits

• Perceived security and insurance

This initiative could shift consumer behavior by offsetting the reward value of credit cards through direct discounts on UPI, making debit-based spending more attractive.

Stakeholder Consultations Underway

Sources indicate that the government will hold meetings in June 2025 with multiple stakeholders to finalize the framework. These include:

• E-commerce platforms

• Payment service providers

• National Payments Corporation of India (NPCI) – the governing body for UPI

• Retail chains and consumer advocacy groups

The objective is to create a practical and scalable model that encourages merchant adoption without mandating the policy forcefully.

Expected Discount Format: Flat or Tiered?

While the final format is yet to be announced, experts suggest two possible models:

Flat Discount Model:

• A fixed 2% or 3% discount for every UPI transaction

• Simple to understand and implement

Tiered Discount Model:

• Higher discounts on larger purchases

• Dynamic discounts during festive sales or weekends

For example:

Digital Payment Trends in India: The Rise of UPI

As per RBI data, UPI transactions have crossed 12 billion monthly transactions by April 2025, with over ₹18 lakh crore in value. This reflects a massive shift in user preference for mobile-based, real-time digital payments.

UPI’s Growth Factors:

• Zero cost to users and merchants

• Ease of use through QR codes and mobile apps

• Widespread integration with banks and fintech platforms

This new UPI discount plan may further accelerate UPI dominance in India’s retail economy.

Challenges and Concerns

Despite the benefits, some concerns have been raised by:

1. Banks and Credit Card Companies

• Possible decline in credit card usage and revenue

• Fear of imbalance in the payment ecosystem

2. Retailers

• Worries about inconsistent discount practices

• Concerns over implementation complexity across small outlets

3. Consumers

• Possible confusion if different retailers offer different discount rates

• Lack of UPI adoption among non-tech-savvy populations

How Consumers Can Prepare

If this plan is implemented, consumers can take the following steps to benefit:

1. Install and link UPI apps like BHIM, PhonePe, Google Pay, Paytm

2. Ensure your bank account is UPI-enabled

3. Look out for UPI discount offers at your favorite stores

4. Encourage local merchants to offer UPI-based discounts

Comparing Credit Card vs UPI Post-Implementation

Expert Views: A Step Toward Cashless India

Digital economists and fintech analysts have welcomed the proposal as a progressive step.

“Incentivizing UPI use with visible benefits to consumers aligns with India’s long-term digital transformation goals,” says PayTech analyst Rahul Mehta.

“This could be the tipping point where UPI not only becomes the most used mode but also the most preferred one,” added fintech consultant Meera Narayan.

With zero MDR, faster processing, and now the possibility of upfront discounts, UPI is being positioned as India’s go-to payment platform for both small and high-value purchases. If implemented successfully, the policy could:

• Reduce transaction costs

• Empower small merchants

• Drive greater financial inclusion

• And make UPI not just convenient, but financially rewarding

Consumers, merchants, and policymakers alike now look forward to June 2025, when further clarity is expected on this ambitious digital payments incentive plan.