MDR on UPI payments likely to unlock ₹15K-21K crore revenue pool

Brokerages expect banks to receive the largest share of the levy, while Paytm, Pine Labs and other fintechs could gain from higher transaction-linked revenue annually

5 min read Last Updated : Sep 17 2026 | 12:40 AM IST

The return of a merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions after six years could generate ₹15,000-20,600 crore in annual revenue for India’s digital payments and banking ecosystem, according to brokerage estimates.

A 0.4 per cent MDR will apply to peer-to-merchant (P2M) UPI transactions above ₹2,000; it’s capped at ₹300 on transactions valued above ₹75,000.

Based on the August 26 run-rate, about 48 per cent of total UPI P2M transaction value, or $539 billion (around ₹51.7 trillion), would have qualified for the full 40-basis-point fee, according to Goldman Sachs. That implies an industry revenue pool of about $2.2 billion, or ₹20,600 crore. Citi estimates net incremental ecosystem revenue of ₹16,000-17,000 crore a year, while Jefferies puts the opportunity at ₹15,000-18,000 crore.

The proceeds will be shared among issuing and acquiring banks, payment service provider (PSP) banks and third-party application providers (TPAPs). Goldman Sachs estimates 50 per cent of the pool will accrue to issuing banks and PSPs, 20 per cent to TPAPs and 30 per cent to acquiring banks. Citi estimates that banks and UPI handles will capture about 60 per cent, UPI app providers 25 per cent and non-bank payment aggregators the remaining 15 per cent.

“Banks that have merchants doing relatively higher-value transactions could benefit, as could banks that are PSPs and have a large market share. But the quantification is difficult at this stage and we will have to let it play out for some time to see what the eventual number is,” said a senior banker at a private sector bank.

Under the proposed structure, for a ₹10,000 transaction, the ₹40 MDR would flow through the payment chain, with the acquiring bank retaining ₹12, after paying ₹28 to the issuing bank. The issuing bank would retain ₹16, after paying ₹12 to the payer-side PSP, which would retain ₹4 after paying ₹8 to the UPI app provider.

Among banks, State Bank of India is the largest issuer, followed by Bank of Baroda, HDFC Bank, Union Bank of India, Punjab National Bank, Canara Bank and Axis Bank.

Axis Bank has a leading position in the UPI payer-PSP market, with about 38 per cent of transaction volume, and is also one of India’s largest merchant acquirers, with a 22.1 per cent share. Yes Bank, the second-largest PSP, provides UPI infrastructure for several digital payment platforms, allowing it to participate in transactions routed through its rails.

Citi expects Yes Bank to be a standout beneficiary because of its outsized share of UPI beneficiary volumes. The incremental revenue could amount to 5-10 per cent of pre-provision operating profit and 6-12 per cent of profit before tax, according to the brokerage.

Bank of Baroda, Punjab National Bank and IndusInd Bank could see about a 2 per cent increase in profit before tax, while Axis Bank, SBI and Federal Bank could see a 1-2 per cent benefit, Citi estimates. HDFC Bank and ICICI Bank, which have larger fee-income bases, along with Kotak Mahindra Bank and AU Small Finance Bank, are expected to see a benefit of less than 1 per cent.

Fintech companies are also expected to gain. Citi estimates the MDR could generate an additional ₹300 crore and ₹600-700 crore of revenue for Paytm from its UPI app and merchant-acquiring businesses, respectively. For Pine Labs, the fee could generate an estimated ₹180 crore in revenue in financial year 2027-28.

Industry sources said IPO-bound fintechs such as PhonePe and Razorpay could also see higher valuations as a result of increased revenue. Founders and executives, however, said much of the MDR income could be recycled into cashbacks and rewards as companies compete to acquire and retain customers. Most fintech business models in India, they noted, were built in the absence 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 of Paytm, said during an analyst call following the company’s first-quarter FY27 results.

Shares of banks with significant UPI exposure rose after the MDR announcement. Yes Bank gained as much as 5 per cent in early trading before closing 1.21 per cent higher on the Sensex, while Axis Bank ended nearly 2 per cent higher. SBI rose 2.24 per cent, Punjab National Bank 2.10 per cent, Union Bank of India 1.31 per cent and Kotak Mahindra Bank 1.29 per cent.

The 0.4 per cent MDR was notified on Tuesday for P2M transactions above ₹2,000. Some categories, including utilities, agriculture, railways, government and insurance, will instead attract a flat ₹5 fee.

Emkay identified several risks to the revenue estimates, including the final interchange-sharing formula, the potential for competitive discounting as acquirers compete for large-ticket transactions, and the elasticity of the ₹2,000 threshold. Goldman Sachs also noted that some online merchants already pay flat or cost-plus fees on other payment instruments, which could reduce the incremental revenue available to the industry.