New Delhi: Shares of several payment and banking companies rose on Wednesday, September 16, after the National Payments Corporation of India (NPCI) introduced a Merchant Discount Rate (MDR) of 0.4% on certain UPI payments made to merchants. The new framework will come into effect from October 15.
The charge will apply only to person-to-merchant (P2M) UPI transactions exceeding ₹2,000. The government clarified that customers will not be directly charged for making UPI payments. Person-to-person (P2P) transfers and P2M payments of up to ₹2,000 will continue to remain free.
According to the Finance Ministry, the MDR is a charge within the merchant payment ecosystem and will be shared among participating banks, payment service providers and app providers. Individuals will continue to have unlimited free UPI usage without monthly quotas or transaction-volume restrictions.
Under the new structure, the 0.4% MDR on P2M transactions will be capped at ₹300 for payments of ₹75,000 and above. Essential and thin-margin sectors such as railways, telecom, insurance, fuel and agricultural inputs will instead attract a flat ₹5 MDR on transactions above ₹2,000.
The same flat-fee treatment will apply to government utility bill payments, including electricity, water and piped gas, as well as educational fee payments such as school and university fees. Meanwhile, payments involving mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%, also capped at ₹300.
Small-value UPI transactions remain largely unaffected. The government said payments of up to ₹2,000 account for more than 95% of P2M transaction volume. P2P payments, which represent around 37% of UPI transaction volume and 70% of its transaction value, will continue to carry zero charges irrespective of transaction size.
Payment and banking stocks gain
Following the announcement, Paytm parent One 97 Communications gained during Wednesday’s session and touched a 52-week high of ₹1,855.50, rising 7.25% from its previous close. YES Bank shares also advanced, while SBI and Bank of Baroda traded higher.
Market analysts cited in the report said the MDR framework could create a substantial new revenue pool for banks and payment companies.
Citi estimated an annual incremental ecosystem revenue pool of around ₹16,000-17,000 crore, with approximately 60% potentially accruing to banks, 25% to UPI app providers and 15% to non-bank payment aggregators.
Goldman Sachs estimated a potential industry revenue pool of around ₹20,600 crore and said the new MDR could support higher earnings estimates for payment companies, including Paytm.
JPMorgan estimated the maximum revenue pool at around ₹17,000 crore, with banks potentially receiving about ₹11,700 crore through issuer and acquirer-related revenue.
The impact, however, is expected to vary across companies depending on their exposure to the UPI ecosystem and their role in processing merchant transactions.
