State Bank of India could earn up to ₹3,000 crore annually if the proposed UPI Merchant Discount Rate (MDR) is implemented.
A UPI MDR of 25–30 basis points could generate between ₹13,500 crore and ₹16,000 crore in annual revenue, according to industry estimates.
The final MDR rate, revenue-sharing formula and thresholds for large merchants are yet to be decided by the NPCI Steering Committee after the government issues the required Gazette notification.
UPI MDR May Generate ₹16,000 Crore a Year; SBI Seen as Biggest Gainer
Bankers estimate the proposed Merchant Discount Rate on large UPI transactions could generate billions in annual revenue, with State Bank of India emerging as the biggest beneficiary
Summary
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State Bank of India (SBI) could earn up to Rs 3,000 crore in a full financial year from the upcoming UPI Merchant Discount Rate (MDR), according to estimates from bankers. The country's largest lender stands to gain the most from the proposed merchant levy, a report by Moneycontrol said.
Other top banks will also secure substantial earnings. Bank of Baroda and HDFC Bank could make around Rs 800 crore each. Union Bank and Punjab National Bank could earn around Rs 700 crore each.
The UPI framework identifies these "issuing banks" as remitter banks or account-holding institutions. SBI currently commands a nearly 25 per cent share of this segment, a dominance fueled by its massive customer base across India.
Uncertain Devolution and Rates
Regulators are yet to decide on the devolution formula of the MDR among various partners. Once the government issues the Gazette notification, the NPCI Steering Committee on UPI will decide on the sharing matrix.
Issuing banks could earn an interchange rate between 60 and 70 per cent of the MDR. Before 2020, when UPI had an MDR, issuing banks received 70 per cent of the MDR revenue.
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The report said that the MDR rate is likely to be between 25 and 30 basis points. At a 30 basis points MDR, the ecosystem could generate up to Rs 16,000 crore in revenue annually.
At 25 basis points, the ecosystem could generate Rs 13,500 crore based on the value of merchant transactions.
The MDR levy will likely be restricted to high-value payments and large-scale commercial entities. However, the specific thresholds for these categories remain under deliberation.
Sharing the UPI Revenue
Ecosystem partners will divide the MDR revenue. These partners include account issuing banks, beneficiary banks, consumer-side payment service provider (PSP) banks, merchant acquiring payment aggregators and the National Payments Corporation of India (NPCI), which runs the UPI.
NPCI receives a fixed switching fee of around 0.02 basis points per transaction. UPI apps like PhonePe, Google Pay and Paytm partner with banks to connect to the UPI network. These partner institutions are called PSP banks.
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Since PSP banks play an outsized role in ensuring the success of UPI, they are likely to get a higher share of MDR than in the card ecosystem. Yes Bank, Axis Bank, ICICI Bank, HDFC Bank and SBI are the largest PSP banks in the UPI ecosystem.
In card transactions, the issuing bank gets around 80 per cent of the revenue.
Card networks like Visa, Mastercard and RuPay handle the switching function directly, meaning there is no concept of PSPs.