Your friendly neighbourhood shopkeeper just stole ₹1.24 lakh from you this year, legally
Your friendly neighbourhood shopkeeper just stole ₹1.24 lakh from you this year, legally. Every time he says ‘UPI only, credit card mein extra charge,’ India’s 432 million middle-class families lose financial freedom worth billions. Here’s the shocking math behind this silent digital heist.
You Walk into your neighbourhood electronics store to buy a laptop worth ₹50,000. The shopkeeper smiles and says, “UPI only, sir. Credit card mein 5% extra.” In that moment, you’ve just been stripped of ₹2,500 in immediate savings, 45 days of interest-free credit worth ₹500, potential EMI options, and cashback rewards. Multiply this across millions of transactions daily, and you witness the largest silent wealth transfer in modern Indian commerce from the pockets of the middle class straight into merchant coffers, all disguised as digital progress.
India’s UPI revolution, processing over 144 billion transactions worth ₹200 lakh crore in 2024, has become a double-edged sword. While celebrated globally as a fintech marvel, it has inadvertently enabled a systematic erosion of middle-class financial flexibility that demands immediate attention.
The Great Digital Deception: When Innovation Becomes Exploitation
The economics driving this shift are brutally simple. Credit cards cost merchants 1-3% in Merchant Discount Rates (MDR), while UPI transactions are free. For a merchant processing ₹10 lakh monthly, switching from cards to UPI saves ₹10,000-30,000 annually a windfall they’re reluctant to share.
This has spawned a culture of coercive payment practices. A 2024 Local Circles survey revealed that 62% of urban consumers face merchants who either refuse card payments or impose illegal surcharges. The Reserve Bank of India’s 2018 directive explicitly bans such surcharges, yet enforcement remains toothless only 12% of violations result in penalties.
The tragedy lies not in merchants seeking efficiency, but in their refusal to pass savings to consumers while simultaneously stripping them of credit benefits. It’s capitalism at its most predatory privatizing gains while socializing losses.
The financial impact on middle-class households is staggering yet invisible. Consider an average family spending ₹30,000 monthly, with 30% of transactions affected by forced UPI adoption:
Lost Interest-Free Credit: Credit cards typically offer 30-45 days interest-free periods. Losing this on ₹30,000 monthly spend equals foregoing ₹1 lakh in annual revolving credit, essentially a free loan worth ₹12,000 in interest savings at current rates.
Vanished Rewards: Credit card rewards ranging 1-5% translate to ₹3,600-18,000 annually on ₹3.6 lakh spending money that simply evaporates with UPI.
Illegal Surcharges: The 2-5% surcharges merchants levy add ₹2,400-6,000 to annual household expenses.
The cumulative erosion: ₹1.06-1.24 lakh per household annually. For India’s 432 million middle-class population, this represents a massive wealth transfer that would make even the most ambitious Robin Hood blush except here, it’s the poor merchants robbing the relatively rich middle class.
The ₹1 Lakh Crore Vanishing Act: India’s Consumption Crisis
This isn’t merely about household budgets; it’s rewiring India’s consumption economy. With 100 million credit card users potentially losing access to ₹1 lakh crore in revolving credit, the ripple effects are already visible:
Electronics sales dropped 4% in 2024 (GfK India), travel spending declined 3% (MakeMyTrip), and discretionary consumption is contracting precisely when India needs domestic demand to drive growth. When middle-class families lose financial flexibility, they postpone purchases, creating deflationary pressures in sectors crucial for employment generation.
The irony is palpable: UPI’s success in financial inclusion is creating financial exclusion for those who need credit facilities most—the aspirational middle class driving India’s economic growth.
This trend represents more than market distortion; it’s a fundamental breach of consumer rights and market fairness. The Consumer Protection Act, 2019 classifies such coercive practices as unfair trade, yet enforcement remains sporadic.
More insidiously, it’s creating a two-tier payment system where cash-rich consumers enjoy choice while credit-dependent middle-class families face digital discrimination. This contradicts the very principle of financial democratization that UPI was meant to champion.
The Fintech Fix: Restoring Digital Democracy
The solution isn’t to throttle UPI’s growth but to ensure its benefits don’t come at consumer expense. Three immediate interventions can restore balance:
Enforcement with Teeth: The RBI must transform its no-surcharge directive from suggestion to law, imposing meaningful penalties that make violations costlier than compliance. Currently, the ₹25,000 maximum penalty is a rounding error for most merchants.
Mandate Benefit Sharing: If merchants save 1-3% through UPI, they should pass 1-2% to consumers as mandatory discounts. This ensures the efficiency gains benefit all stakeholders, not just merchants.
Accelerate UPI Credit Integration: The RBI’s 2023 initiative to link credit lines with UPI must be fast-tracked. Enabling interest-free periods and EMIs through UPI would eliminate the forced choice between payment methods.
India’s digital payment success story risks becoming a cautionary tale if it continues prioritizing transaction volumes over consumer welfare. True fintech leadership means creating systems that enhance financial access without diminishing financial flexibility.
The middle class that embraced credit cards for disciplined spending and cash flow management shouldn’t be penalized for UPI’s operational efficiencies. Innovation that enriches merchants while impoverishing consumers isn’t progress it’s digital colonialism.
Time for Digital Justice
The UPI revolution’s next chapter must be written with consumer equity at its core. As we celebrate processing billions of transactions, we must remember that each forced UPI conversion represents a family losing financial options they worked hard to earn.
The “Sondesh” sweet shop manager’s casual declaration “Maalik ne bola he 5% extra charge” isn’t just about payment preferences; it’s about who controls India’s digital financial future. Will it be merchants maximizing profits or consumers exercising choice?
The answer will determine whether India’s fintech leadership serves prosperity or merely reshuffles it from consumer savings to merchant profits. The time for digital justice is now.
About The Author
Now reverse UPI is happening. Small shopkeepers like cobler etc want money only in cash and no UPI because their business is good and UPI shows their annual turnover which can put them in tax bracket. You may like to write on this also