Industry Odisha Bureau, Sep 17: A new MDR framework could reshape the economics of India’s UPI ecosystem.
Brokerage Bernstein estimates a ₹27,000-crore industry revenue pool by FY28.
The projection assumes MDR applies only to eligible UPI merchant transactions.
A headline rate of 40 basis points underpins the calculation. However, the effective blended rate could remain much lower. Effective MDR Could Settle Near 19 Basis Points Bernstein expects several UPI transaction categories to remain exempt. Others may attract concessional charges instead of the full MDR.
The brokerage estimates an effective rate of about 19 basis points. That estimate applies across the total UPI merchant transaction value. UPI person-to-merchant value could reach ₹144 lakh crore by FY28. Current transaction value is estimated near ₹100 lakh crore. That growth could significantly expand the monetisable payment base.
Banks Could Capture Largest Share
Issuing banks could receive about ₹10,800 crore from the revenue pool. Consumer-facing UPI apps could earn nearly ₹5,400 crore. Their partner payer PSP banks may receive around ₹2,700 crore. Merchant-side payment apps could capture ₹5,400-6,800 crore. Beneficiary banks could earn roughly ₹1,400-2,700 crore. The estimates illustrate how MDR could redistribute payment economics.
Large Transaction Base Will Remain Free
Not every merchant transaction will attract the new charge. Transactions below ₹2,000 will remain exempt. Those transactions represent about 33% of merchant payment value. AutoPay mandates are also expected to remain outside MDR. Capital-market payments may attract only two basis points.
Several essential-service categories could face flat transaction charges. These include fuel, telecom, insurance, education, utilities, and railways. Eligible transactions in these categories may face a flat ₹5 charge. Only about 40% of merchant payment value may face full MDR.
MDR Could Become a Sustainability Fee
For payment companies, MDR may not create extraordinary profit margins. Industry executives see it primarily as an infrastructure sustainability mechanism. UPI has expanded rapidly without direct merchant pricing across most transactions. That model has increased pressure on banks and payment service providers. Technology costs continue rising alongside transaction volumes.
Cybersecurity and fraud prevention require sustained investment. Customer support and network resilience also carry recurring costs. MDR could therefore provide a more predictable revenue stream.
Payment Infrastructure Needs Funding
Banks and fintech firms continue investing heavily in UPI infrastructure. Payment aggregators also face rising compliance and technology expenses. System reliability becomes more expensive as transaction scale increases. Fraud monitoring has also become a major operating requirement. A modest MDR could help fund these recurring costs. That could strengthen resilience across the broader payments ecosystem.
Lower Than Card Economics
UPI MDR would still remain below many card charges. That preserves the cost advantage of account-to-account payments. Merchants would continue paying less than traditional card acceptance costs. Most low-value UPI merchant transactions would also remain untouched.
This limits the direct burden on smaller payments. It also protects UPI’s role in everyday digital commerce.
UPI Monetisation Enters New Phase
The proposed framework marks a structural change for UPI. The network has historically prioritised scale over direct monetisation. A calibrated MDR would introduce a formal revenue model. The challenge will be balancing merchant costs with ecosystem sustainability. Too high a charge could discourage digital acceptance. Too low a charge may not support infrastructure investment.
Bernstein’s estimates suggest that middle ground could still be substantial. By FY28, eligible UPI merchant transactions could become a major revenue engine. The key issue is no longer whether UPI can scale. The next question is how that scale will be monetised sustainably.
