UPI Merchant Fee May Return: Here's How PhonePe, Google Pay and Paytm Could Benefit

The proposed introduction of a merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions could create a significant new revenue stream for India's digital payments ecosystem, with PhonePe, Google Pay and Paytm expected to be among the biggest beneficiaries, according to a Moneycontrol report.

The report said the proposed MDR could be set at 25-30 basis points (bps) on eligible merchant transactions. At 25 bps, the ecosystem could generate around ₹13,500 crore annually, while a 30-bps levy could increase the revenue pool to nearly ₹16,000 crore.

The proposed fee would apply only to merchant transactions above specified turnover and transaction thresholds, which are yet to be notified by the government.

Top UPI Apps, Banks Seen as Key Beneficiaries

According to the report, the largest merchant-acquiring platforms are likely to receive the biggest share of the new revenue. Initial estimates suggest PhonePe and Paytm could earn around ₹700 crore annually each from MDR, while Google Pay could generate about ₹500 crore.

Merchant acquirers have invested heavily in expanding UPI acceptance through QR codes, soundboxes and point-of-sale devices. Industry participants cited in the report said these investments could help large players negotiate better revenue-sharing arrangements with partner banks if MDR is introduced.

The report added that the final distribution of MDR among banks, payment service providers (PSPs), merchant acquirers and other ecosystem participants is yet to be decided. The National Payments Corporation of India (NPCI) will determine the devolution formula after the government issues the Gazette notification.

Banks Also Stand to Benefit

Banks are also expected to receive a significant share of MDR collections. At a 30-bps MDR, the payments ecosystem could generate up to ₹16,000 crore annually, with issuing and beneficiary banks accounting for a large portion of the revenue.

State Bank of India could earn as much as ₹3,000 crore annually under the proposed structure, while Bank of Baroda and HDFC Bank could receive around ₹800 crore each. Union Bank of India, Canara Bank and Punjab National Bank could earn nearly ₹700 crore annually, according to the report.

UPI apps currently receive a small payment from partner banks for processing transactions. However, the proposed MDR could create a much larger and more stable revenue stream for payment platforms and banks as merchant payments continue to dominate the UPI ecosystem. Merchant transactions now account for around 64% of all UPI transactions, while the platform processes more than 23 billion transactions every month, worth nearly ₹30 lakh crore, the report said.