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In a move to boost digital payments and promote Unified Payments Interface (UPI) transactions across the country, the Indian government is preparing to roll out a new plan that could offer direct discounts to consumers paying via UPI. This initiative could make UPI transactions more cost-effective compared to credit card payments, which often carry hidden merchant fees. Here’s a breakdown of what this scheme could look like, how it compares to credit card payments, and what it means for consumers and businesses.

Why UPI May Soon Be Cheaper Than Credit Cards

Today, many people rely on credit cards to avail of discounts, cashback, or reward points at stores, restaurants, and online platforms. But what if those same benefits were available simply by scanning a QR code and paying via UPI? That’s exactly what the government is working toward — making UPI the more attractive payment method by offering instant discounts at the time of purchase.

Government's New Plan for UPI Discounts

According to a report by Mint, the Ministry of Consumer Affairs is working on a proposal that will allow consumers to get direct price reductions when they choose to pay via UPI instead of cards. The move aims to pass on the transaction cost savings of UPI to end users.

Here's why this matters:

• When you pay using a credit card, the merchant typically pays a 2-3% MDR (Merchant Discount Rate) to banks and payment networks like Visa or MasterCard.

• For instance, if you buy something worth ₹100 using a credit card, the merchant may receive only ₹98 due to MDR deductions.

• In contrast, UPI payments carry zero MDR, which means the merchant receives the full ₹100 amount.

Yet, despite the cost efficiency of UPI, its benefits are not currently passed on to consumers. This new government plan aims to change that.

How the Discount Would Work

If the proposal goes into effect, customers who use UPI for purchases may directly pay less than those using credit cards. For example:

• If a product costs ₹100, and the UPI discount is implemented, the consumer may only pay ₹98.

• However, someone paying via credit card would still be charged the full ₹100, despite the merchant receiving only ₹98 after MDR.

This structure will encourage both online and offline shoppers to opt for UPI, giving them a direct price advantage and making the digital payment method more rewarding.

Stakeholders Involved in the Proposal

The success of this plan hinges on coordination among several parties, including:

• The Ministry of Consumer Affairs

• Banks

• E-commerce companies

• Consumer advocacy groups

• National Payments Corporation of India (NPCI)

• Department of Financial Services (DFS)

A major meeting is scheduled for June 2025 to discuss the implementation roadmap.

How This Benefits Digital India

If implemented, this strategy will:

• Promote wider adoption of UPI, especially among those who still prefer cash or cards.

• Strengthen India’s digital payment infrastructure and reputation globally.

• Provide cost savings for consumers across various segments, from groceries to online shopping.

The Other Side: Industry Concerns About Zero MDR

However, the proposal is not without challenges. The Payments Council of India has expressed concerns about a zero-MDR model.

• Industry leaders argue that no transaction fees make it difficult for payment service providers to invest in cybersecurity, system upgrades, and innovation.

• As a solution, they propose a modest MDR of 0.3% on UPI and RuPay payments for large merchants, which would help sustain the infrastructure without significantly impacting affordability.

This ongoing debate could influence the final structure of the UPI discount scheme.

Conclusion

The Indian government’s proposed plan to offer direct discounts on UPI transactions marks a significant shift in the way digital payments are incentivized. By potentially allowing consumers to save ₹2 on every ₹100 spent, UPI could become not just a convenient, but also a more economical payment option compared to credit cards. However, with industry stakeholders debating the viability of a zero-MDR model, the final framework will need to strike a balance between consumer benefits and long-term sustainability.

All eyes are now on the upcoming policy discussions in June, which could determine the future of how India pays.