Effective 15 October, a 0.4% merchant discount rate (MDR) applies to eligible person-to-merchant (P2M) UPI transactions above ₹2,000, subject to a ₹300 cap, with concessional rates for specified sectors. According to reports from The Economic Times, One 97 Communications Ltd's (Paytm) stock has gained nearly 3% since 15 September when the National Payments Corporation of India (NPCI) announced this new framework. Investors celebrated the move from a largely subsidy-based model towards a contractual and scalable revenue model. The government sources state this move aims to strengthen the UPI ecosystem's safety and sustainability, though opposition parties have criticized the decision. UPI AutoPay and mandates will be treated separately, while mutual funds and capital-market payments will attract a lower MDR. Importantly, the charge will be borne by merchants, not customers, raising questions over its impact on SIPs and stock investments.
The headline 0.4% MDR rate is not Paytm's direct revenue, as the MDR must be shared across the ecosystem including issuing and acquiring banks. As reported by The Economic Times, JM Financial Institutional Securities assumes a 20% allocation to Paytm, translating into an 8-basis-point (bps) share of the MDR, while Emkay Global Financial Services has pencilled in a 10-bps passthrough. Emkay expects ₹1,120 crore in incremental MDR revenue for Paytm in FY28, while JM's calculations show just ₹473 crore. Accounting for the loss of UPI incentive, JM expects ₹443 crore in net incremental MDR revenue, with 100% assumed to flow through into EBITDA. The charges remain well below card fees and exempt many smaller transactions, with everyday person-to-person payments and small transactions remaining entirely free of any charges.
P2M UPI transactions above ₹2,000 account for only 4% of transaction volumes but 67% by value, according to The Economic Times. However, the eligible UPI pool is expected to be much smaller due to concessional rates. Specified sectors including railways, telecom, insurance, fuel, and agricultural inputs will pay a flat ₹5 per transaction, forming 46% of UPI P2M transaction value. These sectors are eligible for concessional rates, with capital market transactions also attracting concessional rates and small merchants exempt. JM Financial expects the eligible P2M UPI pool at 20%, while Emkay estimates it at 35%. The new framework will implement fees on certain merchant transactions while keeping person-to-person payments and transactions under two thousand rupees free of charge.
According to The Economic Times, Paytm clocked ₹2,448 crore in operating revenue during the June quarter (Q1FY27), of which ₹1,384 crore came from payment services. Aided by 31% year-on-year growth in merchant gross merchandise value (GMV) to ₹7.1 trillion last quarter, revenue grew 28%, and EBITDA margin expanded from 1% to 8%. MDR rates are comfortably below credit card economics, which carry 1.5-2.5% rates, limiting the possibility of high-ticket transactions being migrated to cards. The levy aims to sustain UPI infrastructure and support its continued expansion.
As reported by The Economic Times, while Paytm has gained market-share from 5.6% in Q1FY26 to 6.7% in Q1FY27, it remains far behind PhonePe's 49.4% and Google Pay's 33.7%. In a bid to capture a bigger share of large-ticket flow, Paytm may be forced to pass some of their MDR share back to large merchants through discounts. The stock has gained 37% so far in 2026 and trades at around 35x FY28 estimated enterprise value/EBITDA, per JM Financial. Pine Labs chairman Amrish Rau called the change a "life-changing opportunity" for the company, while Zerodha CEO Nithin Kamath has criticized the new UPI MDR framework, stating it may not make economic sense for investing and broking, where customers can transfer funds without trading, and suggesting a lower MDR with a transaction-level cap.
