Study reveals street vendors may abandon unified payments if merchant discount rates apply

More than 67% of street vendors in India currently accept Unified Payments Interface (UPI) payments for transactions, according to an Indian School of Business study. A proposed 0.4% merchant discount rate (MDR, the fee charged to merchants for accepting card or digital payments) could lead to reduced acceptance among these vendors. Concerns arise particularly for vendor-supplier transactions, because many vendors make payments above ₹2,000. A significant portion of vendors reported facing additional charges from suppliers and indicated they might pass these costs onto customers.

Digital payment ecosystems rely on transaction fee structures to fund infrastructure maintenance and processing costs for banks and payment gateways. When transaction charges are introduced for small merchants who previously enjoyed zero-fee transfers, the economic incentive to use digital rails diminishes. In practice, the old position of completely free micro-transactions contrasts sharply with the new potential cost structure, threatening financial inclusion for informal traders who depend on low-cost digital settlements. Tax professionals and small business advisors should review client invoicing models and supplier payment workflows to prepare for potential cost increases.

Stakeholders must track regulatory announcements from the National Payments Corporation of India and banking authorities regarding any final merchant discount rate implementation. Bottom line: shifting transaction costs could force informal businesses to rethink digital collection methods and alter daily cash flows.