A proposed 40-basis-point merchant discount rate, or MDR, on UPI transactions could create a revenue pool of roughly Rs 27,000 crore by FY28, according to Bernstein, in a development that would mark one of the most significant shifts yet in the economics of India's digital payments ecosystem.
The estimate underscores how even a modest levy on the country's dominant instant-payments rail could unlock a large commercial opportunity across the value chain. Bernstein said issuing banks and UPI apps would capture substantial portions of the pool, while merchant-side payment apps and acquiring banks would also receive meaningful revenue shares. The brokerage's framework suggests that a carefully structured MDR could help sustain the infrastructure that powers UPI's rapid expansion without materially altering its low-cost appeal for most users.
Revenue Pool Emerges
Bernstein's projection is based on the scale of UPI adoption and the sheer volume of transactions flowing through the network. UPI has become the backbone of retail digital payments in India, handling everything from small-ticket purchases to larger merchant payments. A 40-basis-point fee, applied selectively, would therefore translate into a sizeable annual revenue stream even if many low-value transactions remain exempt.
The key policy implication is that UPI, long positioned as a near-zero-cost public digital utility, may need a more durable economic model as transaction volumes rise and infrastructure costs deepen. The brokerage's analysis indicates that the proposed levy would still sit well below the fee structure typically associated with card payments, preserving UPI's competitive advantage while introducing a monetisation layer for participants in the ecosystem.
That balance matters. India's payments architecture has been built on the premise of scale, convenience and low friction. But as the network matures, the question of who pays for rails, fraud controls, merchant acquisition, app maintenance and settlement support has become harder to avoid. Bernstein's estimate suggests policymakers and industry stakeholders may increasingly view MDR not as a reversal of UPI's public mission, but as a mechanism to fund its next phase of growth.
Who Gains From Levy
The distribution of the revenue pool is as important as the headline number. Bernstein said issuing banks and UPI applications would receive a significant share, reflecting their role in transaction initiation, customer engagement and network participation. Merchant-side payment apps and acquiring banks, which help onboard merchants and process payments at the acceptance layer, would also stand to gain.
For banks, the prospect of a recurring revenue stream could help offset the economics of serving a high-volume, low-margin payments system. For payment apps, the levy could create a clearer path to profitability in a sector where user acquisition has often outpaced monetisation. For acquiring institutions, the change could improve incentives to expand merchant acceptance, particularly among smaller businesses that have benefited from UPI's low-cost structure.
The proposal also reflects a broader industry reality: digital payments infrastructure is not free to maintain. As UPI scales deeper into commerce, transport, mobility and everyday consumer spending, the costs of uptime, security, dispute handling and integration rise with it. A modest MDR could therefore be framed as a sustainability charge rather than a punitive fee.
Policy Trade-Offs
Any move to impose MDR on UPI would, however, require careful calibration. The system's success has been built on widespread consumer adoption, merchant acceptance and the perception that digital payments are cheaper and simpler than cash or cards. A poorly designed levy could risk slowing usage growth or prompting resistance from merchants, especially in price-sensitive segments.
Bernstein's note suggests that exemptions for smaller transactions would be central to preserving UPI's mass-market utility. That design feature would limit the burden on everyday users while allowing the ecosystem to monetise higher-value merchant payments. In effect, the policy would seek to tax scale rather than access.
The debate comes at a time when India's payments landscape is maturing rapidly and mobility-linked commerce is becoming more digital. For automotive retail, EV charging, ride-hailing and other mobility services, UPI has become a default payment method because of its speed and low cost. Any change in pricing could therefore ripple across sectors that rely on frictionless digital settlement.
Still, Bernstein's analysis points to a central conclusion: if UPI is to remain the country's dominant payments rail while continuing to expand, the system may need a revenue model that is both modest and sustainable. A 40-basis-point MDR, in that context, would be less a break from the past than an attempt to finance the future.