Bernstein's latest assessment suggests that India's payments ecosystem could be on the cusp of a major monetisation shift if a merchant discount rate, or MDR, is introduced on UPI transactions at 40 basis points. The brokerage estimates that such a levy could create a revenue pool of roughly Rs 27,000 crore by FY28, opening a new income stream for banks and payments companies that have so far relied heavily on scale rather than direct transaction fees.
The proposal, while still conceptual in the market context, would mark a significant evolution for the country's flagship digital payments rail. UPI has become the dominant mode for retail digital payments in India, but its explosive growth has also intensified the question of how the infrastructure should be funded over the long term. Bernstein's view is that a modest MDR could help sustain the system's economics without undermining adoption, especially because the charge would remain far below typical card fees and could exclude many smaller-value transactions.
Revenue Pool Outlook
Bernstein's estimate is anchored in the scale of UPI's transaction volumes and the possibility that a small levy, applied selectively, could translate into a meaningful aggregate pool by FY28. At 40 basis points, the charge would still be modest compared with the economics of card-based payments, where merchant fees are materially higher. That gap matters: it suggests policymakers could preserve UPI's price advantage while creating a mechanism to support the infrastructure that underpins its reliability, interoperability and continued expansion.
The brokerage expects issuing banks and UPI apps to receive substantial portions of the revenue pool. That is notable because both groups have played central roles in UPI's growth but have had limited direct monetisation opportunities. Issuing banks, which connect customer accounts to the payment network, could see a new source of income tied to transaction flow. UPI apps, meanwhile, may be able to convert their user scale into a more durable business model if a fee-sharing framework is adopted.
Merchant-side payment apps and acquiring banks are also expected to capture meaningful shares of the revenue. In practical terms, that would spread the economics across the ecosystem rather than concentrating them in one layer. For payment firms, the shift could improve unit economics and potentially support higher investment in fraud controls, customer acquisition and merchant integration. For banks, it could add a fee-based revenue line at a time when digital transaction volumes continue to rise but margins remain under pressure.
Policy Trade-Offs Ahead
The central policy challenge is balancing sustainability with inclusion. UPI's success has rested on low or zero-cost acceptance for merchants and frictionless consumer adoption. Any move toward MDR therefore carries political and commercial sensitivity. Yet the absence of a durable funding model also raises questions about who pays for the network as usage deepens and infrastructure demands increase.
Bernstein's framing implies that a carefully designed MDR could be introduced without derailing the broader digital payments story. The key would be to keep the charge low, exempt smaller transactions, and ensure that the burden does not fall disproportionately on micro-merchants or price-sensitive users. Such a structure would preserve the core value proposition of UPI while acknowledging that high-volume digital infrastructure is not costless to operate.
For the automotive, EV and mobility ecosystem, the implications are indirect but relevant. Vehicle purchases, charging payments, subscription services and mobility platforms increasingly rely on digital rails for customer convenience and recurring billing. If UPI monetisation becomes more formalised, businesses in these sectors may need to reassess payment costs, merchant acceptance strategies and the economics of digital collections at scale.
What Markets Are Watching
Investors will now watch for any policy signals on whether MDR for UPI could move from theory to implementation. The issue has long been debated because it sits at the intersection of financial inclusion, fintech profitability and public infrastructure funding. A formal levy would likely be calibrated carefully, but even the prospect of one could reshape expectations for payments companies and banks that have built business models around UPI traffic.
For now, Bernstein's estimate provides a useful lens on the size of the opportunity. A Rs 27,000 crore revenue pool by FY28 would not only be significant in absolute terms, but also symbolic: it would indicate that India's digital payments architecture is entering a new phase, one in which scale alone may no longer be enough and monetisation will increasingly matter. The challenge for policymakers will be to extract value from the system without weakening the very adoption curve that made UPI a national success.