D2C brands and discount brokerage firms are raising concerns over the proposed merchant discount rate (MDR) on UPI payments, with businesses across sectors warning that the additional payment cost could put pressure on margins and, in some cases, force them to rethink how they absorb transaction costs.
For D2C companies, the concern comes at a critical time as brands enter the festive season, when sales volumes rise but so do expenses on discounts, customer acquisition, marketplace commissions and listing fees. Founders said even a 0.4 per cent MDR could become significant when applied to large transaction volumes.
“UPI has become an integral part of the D2C checkout experience because of its convenience and high consumer adoption. While a 0.4 per cent MDR may appear small at an individual transaction level, for growing D2C brands processing significant volumes, these costs add up and have a direct impact on contribution margins, especially during the festive season when discounting and customer acquisition costs are already elevated,” said Utkarsh Sahu, Co-founder & CEO, Hunnit.
Sahu said Hunnit would be reluctant to pass the cost on to consumers, given the potential impact on checkout conversion.
“At Hunnit, we would be reluctant to pass this cost on to consumers because friction at checkout can directly impact conversion. In the short term, brands will likely absorb the cost, but over time it will make payment costs another important line item that D2C businesses have to actively optimise,” he added.
Another founder of a personal care brand, speaking off the record, said brands are likely to absorb the cost initially, but the MDR would further squeeze already-thin margins. The founder said the timing was particularly challenging because festive sales come with additional costs such as marketplace commissions, listing fees, discounting and marketing.
The concerns are similar to those being raised by discount brokers including Groww, Zerodha and Angel One, which have sought changes to the proposed MDR framework. Brokers have argued that the ₹300 cap does not meaningfully address the economics of capital-market transactions and have sought a much lower effective charge, including a 2-basis-point MDR with a ₹2–5 cap.
They have also sought an increase in the MDR-free transaction threshold from ₹2,000 to ₹20,000, arguing that capital-market transactions have different ticket sizes and payment patterns.
UPI has so far operated largely on a zero-MDR model for merchants, with banks and other ecosystem participants supported through government incentives and other revenue streams. The proposed framework would introduce MDR on applicable transactions, making the level of the charge and exemption thresholds important for businesses that rely heavily on UPI for collections.
For D2C brands, founders said the issue is particularly sensitive because UPI has become a core part of the online checkout experience.
“A sustainable payments ecosystem is important. The ideal framework is one that allows banks and payment platforms to continue investing in UPI infrastructure without diluting the affordability and simplicity that made UPI so transformative for Indian consumers and digital-first brands,” Sahu said.