Fuel retailers in Madhya Pradesh will stop accepting UPI transactions exceeding ₹2,000 from October 16, citing the burden of Merchant Discount Rate (MDR) charges. Dealers argue that the 0.4% levy threatens their thin profit margins. The industry is now seeking an MDR exemption for UPI, similar to the policy already in place for credit and debit card payments at fuel stations.
Fuel retailers in Madhya Pradesh have decided to restrict Unified Payments Interface (UPI) transactions for amounts greater than ₹2,000 starting October 16. This move comes as dealers push back against the Merchant Discount Rate (MDR), a fee charged to merchants for processing digital payments. The association representing these pump operators stated that the current 0.4% MDR levy on these transactions is unsustainable given their slim profit margins.
Petrol pumps in India generally operate on narrow margins. When a customer uses a digital payment method, the merchant often pays an MDR fee to the bank or payment service provider. While the government has actively promoted digital transactions, the cost of processing these payments usually falls on the merchant. For fuel dealers, who often work with margins of around 0.5% to 1%, a 0.4% fee on transaction values effectively removes a significant portion of their profit from each sale.
To manage these costs, dealers are demanding that the government provide an MDR exemption for UPI payments at fuel stations. This would mirror the existing arrangement for credit and debit card payments, where MDR charges are typically waived or absorbed to encourage digital adoption. Because credit and debit card payments at fuel stations are currently processed without such fees, retailers argue that UPI should be treated under a similar zero-charge framework.
For consumers, this change will mean that paying for large fuel bills via UPI may no longer be an option at participating stations in Madhya Pradesh. However, retailers have confirmed that physical credit and debit card payments remain unaffected and will be accepted for all transaction amounts without any restrictions. This effectively pushes customers back toward cards or cash if their bill exceeds the new ₹2,000 limit.
The standoff highlights a broader challenge in the digital payment ecosystem, where the goal of universal digital adoption meets the economic reality of small merchants operating on low margins. As the October 16 deadline approaches, the situation remains unresolved. Investors and market watchers should monitor whether the government or regulators step in to provide clarity on MDR policies for fuel retailers, or if the trend of restricting UPI payments expands to other regions facing similar cost pressures. The outcome of these discussions will be key to understanding whether this becomes a localized issue or a wider policy debate across the Indian retail fuel sector.