Bernstein has estimated that a 40-basis-point merchant discount rate, or MDR, on Unified Payments Interface transactions could create a revenue pool of roughly Rs 27,000 crore by FY28, underscoring the scale of monetisation that could emerge if India introduces a charge on merchant UPI payments. The estimate comes at a time when policymakers and industry participants are increasingly focused on the long-term funding model for UPI, which has become the backbone of India's retail digital payments ecosystem.
The brokerage's analysis suggests that the proposed levy would not be a simple transfer from merchants to banks, but a multi-party revenue stream spanning issuing banks, UPI apps, merchant-side payment apps and acquiring banks. In practical terms, that means the economics of UPI could shift from a largely subsidy-driven model to one in which the infrastructure supporting instant payments begins to generate recurring fee income. Bernstein's framework implies that the largest beneficiaries would be the institutions and platforms closest to transaction origination and acceptance, rather than a single dominant intermediary.
Revenue Pool Outlook
The headline figure is significant because UPI has so far expanded on the back of zero or near-zero merchant acceptance costs for most users. A 40-basis-point MDR would still remain materially below the fees typically associated with card payments, according to the brokerage's premise, while preserving the affordability that has helped UPI scale across small merchants, large retailers and everyday consumer use cases. The charge structure is also expected to exempt many smaller transactions, limiting the burden on the most price-sensitive segments of the market.
That balance is central to the policy debate. India's digital payments system has grown rapidly, but its economics have remained fragile because transaction growth has not always translated into sustainable revenue for the ecosystem participants that maintain the rails. A modest MDR, if applied selectively, could provide a funding mechanism for infrastructure, fraud controls, customer support and network expansion without materially slowing adoption. Bernstein's estimate therefore points to a potential inflection point: UPI may be moving from a public-good phase toward a more commercially durable phase.
Who Gains, Who Pays
Under the brokerage's model, issuing banks and UPI apps would receive substantial portions of the revenue pool, reflecting their role in enabling transactions and managing user relationships. Merchant-side payment applications and acquiring banks would also capture meaningful shares, particularly where they help onboard merchants, process settlements and support acceptance infrastructure. The distribution matters because it determines whether the new fee structure can be absorbed across the ecosystem without creating bottlenecks or discouraging participation.
For merchants, the key question is whether the added cost would be passed through, absorbed, or offset by higher sales volumes and lower cash-handling expenses. For consumers, the direct impact may remain limited if the levy is confined to merchant payments and smaller-value transactions continue to be exempt. Even so, any move to introduce MDR on UPI would be closely watched by retailers, fintech firms and banks, all of whom have benefited from the current low-cost regime.
The proposal also carries broader strategic implications for India's payments architecture. UPI has become one of the country's most visible digital public infrastructure successes, but its continued expansion requires a viable commercial base. If the ecosystem is expected to support higher transaction volumes, deeper merchant penetration and stronger service quality, then some form of monetisation may become unavoidable. Bernstein's estimate gives that debate a concrete financial scale.
Policy Trade-Offs Ahead
The challenge for regulators will be to preserve UPI's accessibility while ensuring that the network can pay for itself over time. A 40-basis-point MDR is not trivial in aggregate, but it is still modest relative to card-based payment costs and could be structured to protect low-value transactions. That makes the proposal politically and economically more feasible than a broad-based fee on all UPI usage.
At the same time, any introduction of MDR would need careful calibration to avoid undermining merchant adoption, especially among small businesses that have embraced UPI because it is simple, fast and inexpensive. The policy question is no longer whether UPI can scale; it is how India will finance the next stage of that scale. Bernstein's Rs 27,000 crore estimate suggests the answer could be a measured, targeted levy that keeps the network expanding while beginning to reward the institutions that run it.