UPI MDR could create Rs 27,000 crore revenue pool by FY28: Bernstein

A 40-basis-point merchant discount rate (MDR) on eligible Unified Payments Interface (UPI) transactions could generate a revenue pool of approximately Rs 27,000 crore by the fiscal year 2028, according to estimates from brokerage Bernstein. The revenue would be distributed among various stakeholders, with issuing banks receiving around Rs 10,800 crore, UPI apps and their partner payer PSP banks earning around Rs 5,400 crore each, and merchant-side payment apps capturing another Rs 5,400-6,800 crore.

Beneficiary or acquiring banks could receive roughly Rs 1,400-2,700 crore, based on Bernstein's illustrative distribution.

These estimates are derived from an effective MDR that is significantly lower than the headline 40 bps, as many UPI payment transactions are exempt or subject to concessional charges. The brokerage anticipates that UPI person-to-merchant transaction value will increase from approximately Rs 100 lakh crore to Rs 144 lakh crore by FY28, with an overall blended effective MDR of about 19 bps, resulting in the estimated Rs 27,000-crore annual revenue pool.

Pranav Gundlapalle, India Head of Financials at Bernstein, explained that after accounting for exempt transactions and concessional MDR categories, the effective MDR on total UPI person-to-merchant transaction value is estimated at around 19 bps. Factors such as transactions below Rs 2,000, which constitute approximately 33% of person-to-merchant transaction value, being free, auto-pay mandates being exempt, and capital-market payments attracting only 2 bps also contribute to this figure.

Additionally, specific categories like fuel, telecom, insurance, education, utilities, and railways will face a flat Rs 5 charge on eligible transactions. Around 40% of total person-to-merchant value will ultimately be subject to the full 40-bps MDR.

For UPI service providers, the levy is more likely to function as a sustenance fee rather than a significant profit pool, as it helps support the cost of running and expanding the payments infrastructure. Vishwas Patel, managing director and CEO of AvenuesAI and Chairman of the Payments Council of India, emphasized that banks, fintechs, and payment aggregators require sustained investment in infrastructure, cybersecurity, fraud prevention, technology, and customer service to maintain the scale of UPI.

Reeju Datta, co-founder of Cashfree, noted that the levy remains well below card fees and leaves the vast majority of UPI transactions untouched.