Every fee has a first customer, and on UPI, that customer is about to be the shopkeeper who spent five years training his till to trust a QR code over a cash box.

The Retailers Association of India (RAI) says that trust is now in play, after the government’s move to bring back a 0.4 per cent Merchant Discount Rate on UPI transactions above Rs 2,000 — capped at Rs 300 on anything crossing Rs 75,000.

Consumers are untouched by the fee. Merchants aren’t. And for retailers running on the kind of margins that don’t survive a bad festive quarter, that distinction is academic.

“Small merchants will now think twice about whether to accept cash or UPI,” said Kumar Rajagopalan, CEO of RAI, describing a calculation that plays out at the counter, transaction by transaction, right through the season when it matters most. A large share of festive purchases clear Rs 2,000 — the exact threshold where the fee kicks in.

RAI’s objection isn’t really about the 0.4 per cent. It’s about what happens to the number on the other side of that decision. Every rupee that reverts to cash is a rupee that vanishes from the GST trail — the same trail the government spent the better part of a decade building through UPI adoption. Rajagopalan doesn’t hedge on the contradiction: “This cuts against the government’s own formalisation agenda. UPI acceptance should be incentivised, not taxed.”

A policy built to pull transactions into the light is now handing merchants a reason to push them back into the dark, and RAI wants that irony on the record.

The association’s second argument is more technical, and more pointed: not all UPI is the same UPI. A payment drawn straight from a savings or current account carries none of the risk or interchange cost that a card network charges for — it’s a debit transaction wearing a QR code. A UPI payment riding a credit line is a different animal entirely, with a cost structure that actually resembles the card economy it’s competing against.

RAI’s position collapses the two: charge the credit-linked rail if you must, but a flat fee across all of UPI punishes the exact transaction type — direct, bank-to-bank, fully traceable — that the government should want more of, not less.

“We urge that the government should bear the cost of normal UPI transactions,” Rajagopalan said, “since it repays the government with GST and traceable transactions instead of cash transactions.”

That logic extends one level further, to who funds NPCI itself. RAI’s position is that the infrastructure keeping UPI running nationwide shouldn’t be paid for by shaving margins off the smallest retailers in the country — it should be underwritten by the state that benefits most from the formal transaction trail UPI generates.

“The state gets a formal, traceable transaction it can tax out of every UPI payment,” Rajagopalan said. “It should be paying for the enablement, not passing the bill down to the smallest retailer in the chain.”

RAI says it will raise the matter directly with the National Payments Corporation of India and the Ministry of Finance, pushing for a structure that separates debit-linked UPI from credit-linked UPI — and pairs any merchant charge with incentives substantial enough to keep small retailers inside the formal system instead of handing them a reason to leave it.