The return of a merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions after six years could add anywhere between Rs 15,000 crore and Rs 20,600 crore to the digital payments and banking industry’s revenues, according to brokerage estimates.
An MDR, which is a fee levied on merchants for accepting digital payments, is expected to apply to peer-to-merchant (P2M) transactions with a cumulative value of more than Rs 6 trillion every month, data from the National Payments Corporation of India (NPCI) shows.
Foreign brokerage Citi said an MDR on UPI would translate into higher revenue for listed fintechs such as Paytm and Pine Labs. It said that, given Paytm’s current market share in UPI apps and merchant acquiring, the MDR could translate into Rs 300 crore and Rs 600-700 crore, respectively.
For Pine Labs, the MDR on UPI could translate into estimated revenue of Rs 180 crore in financial year 2027-28 (FY28).
The income accrued through the UPI MDR will be distributed among participants in the e-payments chain: acquiring and issuing banks, the payer payments service provider (PSP) bank and the UPI app provider.
“Industry revenue opportunity can be Rs 150-180 billion and participants will share across issuer, app, acquirer and banks,” global brokerage Jefferies said in a note.
Goldman Sachs estimated potential revenue of Rs 20,600 crore from the UPI MDR.
“We note that some online merchants already pay a flat or cost plus fee on payment instruments, which may reduce the incremental revenue pool for the industry,” it further added.
An MDR of 0.4 per cent on UPI was notified on Tuesday for P2M transactions above Rs 2,000. Some categories, such as utilities, agriculture, railways, government and insurance, attract a flat fee of Rs 5.
Emkay noted that key risks remained interchange-sharing formulas, value leaking to merchants through competitive discounting as acquirers grappled for large-ticket flows, and the elasticity of the Rs 2,000 threshold.
Industry sources said that with the MDR, IPO-bound fintechs such as PhonePe and Razorpay were likely to see an upward revision in their valuations on account of higher revenue.
Founders and industry executives said that the fee generated through the MDR on UPI was likely to be invested back in cashbacks and rewards to acquire and retain more customers. A founder explained that most fintech businesses in India had been modelled in the absence of an MDR on the country’s dominant payments rail.
“With relation to MDR on UPI, we only have one line to say – we want both MDR and non MDR paying merchants to benefit. Our life won’t change materially. Whatever will come will come in the bottom line and whatever will come will be good. There is no obligation in the business model,” Vijay Shekhar Sharma, founder and chief executive officer (CEO), Paytm, had said during an analyst call after the firm’s Q1FY27 earnings.
