UPI MDR Could Create Revenue Pool of Up to Rs 20,000 Crore for Banks, Payment Firms

The introduction of a Merchant Discount Rate (MDR) on select UPI transactions could generate an annual revenue pool of up to Rs 20,000 crore for banks and digital payment companies, according to estimates from several major global brokerages.

Goldman Sachs estimates the potential industry-wide revenue pool at around Rs 20,600 crore. Its estimate is based on the assumption that nearly half of the overall value of UPI transactions could attract the full 40-basis-point MDR.

Morgan Stanley has also projected a significant impact on the earnings of payment-sector companies. According to its estimates, EBITDA for some digital payment providers could increase by 38-48 per cent in FY28 and FY29, while another major provider could see its adjusted EBITDA rise by 24-29 per cent.

UBS has estimated the annual revenue opportunity for banks and payment companies at Rs 10,000-15,000 crore. It expects banks to retain around 60-70 per cent of the revenue, with the remaining share going to digital payment providers.

JPMorgan has placed the maximum potential revenue pool at around Rs 17,000 crore, including approximately Rs 11,700 crore for issuing and acquiring banks. According to the brokerage, the latter amount would be equivalent to around 2.1 per cent of the FY26 net profit of listed commercial banks.

Citi has estimated the annual revenue generated across the UPI ecosystem at Rs 16,000-17,000 crore. Its assessment suggests that around 60 per cent could accrue to banks, 25 per cent to UPI application providers and the remaining 15 per cent to non-bank payment aggregators.

The estimates follow the National Payments Corporation of India (NPCI) introducing a 0.4 per cent MDR on person-to-merchant UPI transactions above Rs 2,000. The new charge is scheduled to take effect from October 15.

The MDR will be paid by merchants rather than consumers. For transactions of Rs 75,000 and above, the charge will be capped at Rs 300.

The actual financial impact on individual banks, UPI apps and payment companies will depend on how the MDR revenue is ultimately distributed among the different participants in the UPI ecosystem.

The introduction of MDR marks a change in the economics of India's UPI ecosystem, which has historically operated with limited direct transaction revenue. For banks and payment companies, the new framework could create a new revenue stream, while its effect on merchants and different categories of UPI transactions will depend on the final implementation and distribution mechanism.