Proposed merchant fee on UPI payments could benefit firms with strong merchant ties and higher-value transactions, signalling a potential shift in India’s digital payments landscape amid ongoing policy debates.
A possible merchant fee on UPI payments would not affect payment companies equally, with the biggest gains likely to go to firms that process more business-to-business and higher-value merchant transactions, industry executives said. The debate comes as the government weighs a framework that could allow Merchant Discount Rate, or MDR, charges on selected UPI merchant payments, although no final rate, threshold or revenue-sharing formula has been announced.
According to a senior Paytm executive, the size of a company’s UPI book will matter less than the type of payments it handles. Firms with deeper ties to merchants, rather than those simply posting the highest transaction counts, may be better placed to benefit if a fee is introduced on some transactions. The executive said this could widen the gap between payment firms with strong merchant franchises and those more reliant on consumer-facing volumes.
MDR is the fee merchants pay banks and payment processors for handling digital payments. UPI has so far operated without such a charge, with government incentives helping support the wider ecosystem. Reports in LiveMint and the Financial Express say the proposal under discussion would apply only to selected merchant payments, with small traders likely to remain exempt. The reported framework would target transactions above Rs 2,000 at merchants with annual turnover of more than Rs 1.5 crore, while leaving smaller merchants outside the levy.
Industry estimates suggest the potential pool could be meaningful. Jefferies has said MDR could create Rs 5,000 crore to Rs 10,000 crore a year for the payments industry, depending on the final structure. The brokerage estimates Paytm could see an extra Rs 300 crore to Rs 730 crore in annual revenue, while Bernstein has projected a larger earnings lift over the next few financial years if the company captures a share of the fee economics. Those figures are based on assumptions rather than company guidance.
The broader policy question is how to make digital payments commercially sustainable without undermining UPI’s appeal to consumers. Piyush Jhunjhunwala, founder and chief executive of Stockify, said the challenge is to build profitable economics while preserving the system’s accessibility. PhonePe co-founder and chief executive Sameer Nigam has said consumers would not be charged for UPI payments. India’s UPI network itself has continued to expand rapidly, with a Worldline report cited by The New Indian Express saying it processed 228.5 billion transactions in 2025, underscoring the scale of the platform at the centre of the debate.
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