UPI charges and cash: what MDR could change

Why the UPI charges debate is back

Talk of UPI charges has returned because a change to India’s payments law now allows merchant fees on certain UPI transactions. The discussion is not about consumers paying more at checkout in the near term, because policymakers have said person-to-person transfers and consumer usage will remain free. The concern is about whether merchants will be charged, and if so, which merchants and which ticket sizes will be covered. A large part of the online debate is tied to how deeply UPI has become embedded in everyday payments, especially for small-ticket spending. People are comparing the scale of UPI with the scale of physical cash in the economy to understand what might break if costs are introduced. Another part of the debate is practical and local, focused on kirana stores and small businesses that run on thin margins. There is also an argument that even “modest” fees can change payment behaviour in a price-sensitive market. At the same time, multiple data points circulating in these discussions suggest cash has not disappeared even as UPI has become central.

Monthly UPI value is nearing the stock of cash

One widely shared RBI framing is that UPI’s monthly transaction value is approaching the economy’s currency outstanding, meaning the monthly flow of UPI payments is now close to the stock of cash circulating at a point in time. The ratio of monthly UPI transaction value to average currency outstanding rose from around 27% in early 2022 to roughly 70% by July 2026, according to the RBI study cited in the discussions. This is often interpreted online as evidence that UPI is now a “default” rail for a big chunk of routine payments. It does not mean the same rupee is used once, because transaction value is a flow measure while currency outstanding is a stock measure. Still, the comparison is useful as a shorthand for the intensity of UPI usage in day-to-day commerce. It also supports the idea that a large share of small-ticket activity has shifted away from notes and coins. Social posts summarise this as UPI replacing marginal cash usage rather than removing cash from the system. That distinction matters when thinking about whether fees might reverse behaviour at the margin.

Cash is rising even as UPI dominates digital payments

A repeated point in the social media thread is that cash in circulation keeps hitting fresh highs, which complicates the “cash is dying” narrative. Data shared in the context shows cash growth slowed to around 4% in FY2023-24, then increased to approximately 6.5% in FY2024-25 and 12% in FY2025-26. The pace has risen to around 13% in FY2026-27 so far, and cash with the public was cited at ₹41.8 lakh crore as of July 31, 2026. This creates a mixed picture where people are using digital payments extensively while still holding more physical cash. Several explanations are discussed, including higher economic activity and the role of cash in informal and rural markets where acceptance infrastructure can be uneven. Another strand of commentary is that households may hold cash for precautionary reasons even if they transact digitally. The practical takeaway is that UPI’s scale does not automatically translate into a fall in the cash stock. That is why the debate over merchant fees is framed as a behavioural nudge rather than a binary switch between UPI and cash.

What the RBI study says about cash demand

The RBI study titled Impact of UPI on Cash Demand-Evidence from National and Subnational Levels is central to the online discussion. It links higher UPI adoption with lower demand for cash at national and sub-national levels, which supports the idea that digital rails can reduce transactional dependence on cash. Importantly, the same framing also says the substitution effect is not linear and weakens at higher levels of adoption. In other words, early adoption can reduce cash demand more sharply, while later adoption may have a smaller incremental effect. The study also notes that currency in circulation (CIC) growth slowed to 4-6% in recent years, which it frames as a structural shift towards digital payments. Yet, the broader context being shared shows that cash growth has accelerated again in the latest period, highlighting that multiple forces can operate at once. The cleanest interpretation shared on social platforms is that UPI replaces the marginal use of cash, such as routine purchases, while cash remains as fallback and reserve. That hybrid framing reduces the temptation to overread any single metric.

ATM and debit-card trends show changing habits

Another set of datapoints being discussed relates to ATM withdrawals and debit card usage. A report cited in the context says the amount of cash withdrawn from each ATM has declined by around 20% from 2022 levels, even as the number of ATMs has remained broadly unchanged. This is used as evidence that people may be withdrawing cash less often for routine spending because UPI is accepted widely for groceries, food, transport and other small-value transactions. The RBI study also finds that ATM cash withdrawals relative to GDP have fallen steadily over the years. That points to reduced transactional dependence on cash, even if the cash stock held by the public continues to rise. Debit-card usage is also part of this story, with transaction volumes said to have fallen 67% between 2021 and 2025 as consumers increasingly turned to UPI. Taken together, these indicators fit the narrative that UPI is taking share from older electronic instruments and from cash for daily payments. They also show why introducing merchant fees is politically and economically sensitive, because it touches a system people use as casually as cash. The overall message from the data is not that cash is gone, but that payment behaviour for everyday spending has changed.

Snapshot of the metrics being cited online

The debate is being driven by a handful of widely repeated numbers from RBI and government-linked studies, plus recent reporting on payment behaviour. These metrics are often shared together to argue that India is moving toward a hybrid economy rather than a cashless one. Some metrics describe flows, like monthly UPI value, while others describe stocks, like currency with the public. ATM and debit-card datapoints are being used as behavioural indicators rather than direct measures of money supply. Here is a consolidated snapshot of the figures referenced in the shared context.

These numbers are being interpreted to mean UPI is now the main rail for routine payments, while cash remains widely held. The table also explains why a merchant-fee debate is framed as a question of incentives, not just infrastructure. If cash is still growing while ATM usage is changing, it suggests cash is playing multiple roles beyond daily transactions. That is consistent with the RBI framing that UPI is replacing marginal cash usage, not eliminating cash. It also implies policy changes that affect merchant acceptance can shift behaviour at the margin without changing the cash stock immediately. As a result, observers are watching which segments are targeted by any MDR-style fee and how merchants respond.

What changed in the law and what MDR proposals look like

On Aug 10, Parliament passed a bill paving the way for banks and payment companies to charge merchants a fee on UPI transactions above a yet-to-be-determined threshold, marking a shift from a zero-fee policy in place since 2020. The government has yet to decide the rate and exactly where it will apply, but proposals under discussion include an MDR of 0.3-0.5% on larger transactions at big businesses. Messaging around the change has emphasised that consumers and person-to-person UPI payments will remain free. Another proposal mentioned in the context is to limit charges to higher-value transactions and larger merchants, potentially keeping the vast majority of everyday UPI payments outside the MDR regime. This distinction matters because everyday UPI usage is often concentrated in small-ticket payments where consumers are highly price-sensitive. Businesses and experts cited in the discussions argue that even modest fees could squeeze profits, especially for thin-margin retail. The policy risk highlighted online is not only the fee itself but the possibility of fee creep over time. A second risk is uneven implementation that could affect small and informal merchants in districts where acceptance networks are still developing.

Will merchant fees push people back to cash?

The strongest argument circulating in the debate is behavioural: if paying digitally costs even a rupee more than cash, many consumers may switch back, and merchants may discourage digital payments. One view is that merchants will pass MDR on through surcharges such as “extra for digital” or by refusing UPI for some purchases. The counterpoint is that if charges are limited to large merchants or higher-value transactions, the effect on broad-based adoption may be modest. This is because person-to-person transfers are expected to remain free, and most routine low-value payments could remain outside the fee regime depending on the threshold. However, critics argue that any cost added to a widely used system can change incentives, especially in price-sensitive categories. Another layer to the discussion is timing: the growth in the value of UPI transactions has been slowing over the last five years, while growth of cash with the public has been quickening, based on the analysis cited. Even so, one cited comparison says UPI transactions grew 18.7% versus 13% growth in cash with the public in the same period. The practical outcome depends on design details that are not yet final, particularly the threshold, the merchant coverage, and how clearly rules are communicated.

What a hybrid payments economy could look like next

The shared RBI framing suggests a steady-state where UPI replaces the marginal use of cash, while cash remains embedded for resilience, informality, and offline needs. In this framing, cash shifts from being the default for every purchase to being a fallback or reserve. That also aligns with the observation that ATM withdrawals relative to GDP have fallen steadily, even as currency with the public is rising. UPI’s role as the preferred payment method is supported in the context by a government study that puts UPI at 57% of user transactions compared with 38% for cash. At the same time, rising cash growth suggests that the economy can deepen both digital transactions and physical currency holdings simultaneously. If MDR is applied narrowly to big merchants and higher-value transactions, the system could preserve everyday zero-fee use while changing economics for some large-ticket payments. If it spreads to small and informal merchants, discussions suggest it could slow merchant expansion and keep cash dominant in areas with weaker acceptance networks. The more realistic near-term picture from the shared data is coexistence, not replacement. Investors and business owners tracking these changes are likely to focus on how payment costs, merchant acceptance, and consumer behaviour interact rather than expecting cash to vanish.