Will UPI MDR be a new revenue engine for fintech firms?
A 0.4% fee on select transactions above Rs 2,000 could create a sizeable revenue pool for payment companies. While the ecosystem is bullish on the valuation of fintech firms, the exact impact on bottom line and customer behaviour remains uncertain.
The government has introduced a merchant discount rate (MDR) on UPI transactions in India, set at 0.4% for payments above Rs 2,000, with a cap of Rs 300 for payments of Rs 75,000 and above. Fintech firms are optimistic about the potential revenue boost from this new fee, with some analysts estimating an initial impact of 0.5% to 1% on profits in the first two quarters.
Paytm, a prominent player in the fintech space, stands to gain significantly from the UMDR, with Jefferies raising its FY28–29 earnings estimates for the company by 10-12% and Goldman Sachs predicting a potential upside of 40-70% for Paytm's FY28 EBITDA. However, experts caution that it is too early to fully understand the impact of the MDR on the broader fintech industry, as consumer behavior and the effectiveness of the new fee structure remain uncertain.
The distribution of revenue from the MDR is expected to be shared among various stakeholders, including banks, payment service providers, and third-party application providers.
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