UPI dominates India's digital merchant payments as card market share shrinks

UPI is taking an increasingly bigger slice of India’s digital merchant payments market, while credit and debit cards are steadily losing ground.

UPI accounted for a record 77.3% of person-to-merchant transactions in July, up from 74.9% a year earlier and 77.1% in June, TOI reported, citing a report by Equirus.

The shift comes even as India's digital merchant payments market continues to expand, growing 19.6% year-on-year to ₹11.7 lakh crore in July. UPI's growing share suggests that the payment system is capturing much of the expansion in merchant transactions.

Also Read: UPI completes 10 years, clocks nearly 13,000-fold rise in transaction volume

Credit cards, in contrast, accounted for 17.7% of merchant payments in July, down from 19.8% a year earlier. Their share was also below the trailing 12-month average of about 19%.

Debit cards have lost even more ground. Their share of merchant payments fell to 3.2% in July from 3.9% a year earlier, as spending that was previously made directly through bank accounts increasingly shifts to UPI.

The trend is visible across India's wider retail payments market too.

Earlier this week, PTI reported, citing CareEdge Analytics & Advisory that UPI's share of retail payment transaction volumes rose from 73.6% in FY23 to 86.8% in the June quarter of FY27.

With UPI becoming the dominant payment mode, the focus is now shifting from adoption to the sustainability of the ecosystem.

CareEdge said proposed changes to the Merchant Discount Rate framework could allow targeted charges on select higher-value merchant transactions. Parliament earlier this month passed amendments to the Payment and Settlement Systems Act, 2007, allowing the government to modify the zero-MDR framework for UPI.

Also Read: UPI MDR explained: What potential charges above Rs 2,000 payments on Paytm, GPay & other apps mean for you and merchants

Consumers would continue to make payments without transaction charges, while all person-to-person transactions would remain free. A nominal MDR could instead apply to a limited set of higher-value merchant transactions above a certain threshold.

CareEdge said merchant payments account for 29% of total UPI transaction value, while 67.2% of merchant transaction value is above ₹2,000. Based on FY26 data, this means about 19.5% of overall UPI transaction value could potentially fall within the proposed MDR threshold.

The share of UPI merchant transactions above ₹2,000 has risen from 15.1% in FY23 to 20.1% in the first quarter of FY27, expanding the pool of transactions that could potentially be covered by MDR.

CareEdge estimated that an MDR of 0.25-0.50% could create a potential gross revenue opportunity of ₹15,000-30,000 crore, while allowing the bulk of everyday and person-to-person UPI payments to remain free.

The shift in market share, meanwhile, is clear: UPI's footprint is expanding while credit and debit cards are giving up ground in merchant payments.