UPI Gets A Price Tag And Apparel Retailers Are Watching

Retail Trends

UPI Gets A Price Tag And Apparel Retailers Are Watching

India’s biggest digital payment success story is about to get a price tag and the textile and apparel trade is watching closely.

From October 15, 2026, specified UPI person-to-merchant transactions above ₹2,000 will attract a 0.4% Merchant Discount Rate (MDR), capped at ₹300 for transactions of ₹75,000 and above. Consumers will not be charged directly; the MDR sits within the merchant payment ecosystem and is shared among banks, payment service providers and UPI application providers.

The timing is particularly sensitive for apparel retailers. The festive season is beginning, and a large number of clothing and fashion purchases can cross the ₹2,000 threshold.

That is where the industry’s concern begins.

The government’s case

The government’s argument is not simply about collecting money.

UPI has operated under a zero-MDR model for years, with the government supporting the ecosystem. The new framework is intended to create a more sustainable revenue model for the payment infrastructure while keeping consumers insulated from a direct charge.

The government says around 96% of merchant UPI transactions will remain unaffected, because most are below ₹2,000 or fall under special zero-MDR arrangements. Person-to-person UPI payments remain free regardless of value.

There are also special rates for some sectors. Essential sectors such as railways, telecom, insurance, fuel and agricultural inputs will pay a flat ₹5 per transaction above ₹2,000, while specified capital-market transactions will attract a much lower 0.02% MDR, capped at ₹300.

In other words, the government is trying to charge the payment ecosystem for higher value commercial transactions without putting a price on everyday digital payments.

But retailers see another side of the equation.

Retailers have a different calculation

For a large retailer, 0.4% may look manageable.

For a small apparel shop operating on a thin margin, it is another cost to absorb.

The Retailers Association of India (RAI) has warned that the charge could push smaller merchants towards cash, particularly during the festive season. “Small merchants will now think twice about whether to accept cash or UPI,” said RAI CEO Kumar Rajagopalan. He argues that once a fee is attached to digital payments, cash becomes the easier option for some retailers.

The Clothing Manufacturers Association of India (CMAI) has raised a similar concern about the timing. “Introducing MDR on UPI at the start of the festive season could not have come at a more challenging time for the industry,” said CMAI President Santosh Katariya, pointing to the pressure already facing merchants, retailers and consumer-facing businesses to revive demand and improve margins.

And there is a bigger issue.

Every apparel transaction that moves from UPI to cash also moves away from the digital trail that supports formalisation and GST reporting.

RAI argues that this cuts against the very formalisation agenda that digital payments have helped build.

Debit or credit? That is the other fight

RAI is also questioning whether all UPI transactions should carry the same economics.

Most UPI payments are directly debited from savings or current accounts. The association argues that these transactions do not carry the same interchange costs or credit risk associated with credit card transactions.

“We don’t see the case for charging a bank-to-bank UPI payment the way you’d charge for credit,” Rajagopalan said.

RAI says a fee is easier to justify when UPI is linked to a credit line because the underlying economics are closer to a credit transaction. It wants the government to bear the cost of ordinary UPI transactions, arguing that the government ultimately benefits from the formal, traceable transactions they generate.

It also argues that the cost of maintaining the UPI infrastructure should be underwritten by RBI or the government rather than pushed down to small merchants.

Now the Supreme Court has entered the picture

The debate has moved beyond industry lobbying.

On September 28, the Supreme Court sought an explanation from the Centre on the legal and policy basis for imposing MDR on specified UPI transactions above ₹2,000. The Court also sought responses from the Centre, RBI and NPCI.

But it did not stay the new framework, leaving the October 15 implementation date in place for now.

That makes the next few weeks particularly important for retailers.

What does it mean for apparel?

The impact is unlikely to be dramatic across the entire apparel market. Most UPI merchant transactions remain outside the new charge.

But the affected transactions are precisely the ones that matter for higher-value retail, a family buying festive clothing, a customer making a larger fashion purchase, or a shopper buying several garments in one transaction.

The immediate question is therefore not whether UPI will disappear from apparel retail. It clearly will not.

The question is whether cash, card or other payment methods start creeping back into transactions that had shifted comfortably to UPI.

For an industry already fighting for consumer spending and better margins, even a small change in payment economics can matter.

“Small merchants will now think twice about whether to accept cash or UPI,” said RAI CEO Kumar Rajagopalan. He argues that once a fee is attached to digital payments, cash becomes the easier option for some retailers.

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