From 15 October 2026, a small Merchant Discount Rate (MDR) will apply to certain UPI payments made to shops and businesses. This marks a shift from the earlier zero-cost model for UPI merchant transactions, although customers will not directly bear the fee. There is no change for person-to-person payments, and most regular merchant payments will remain unaffected. The MDR applies when a single merchant transaction exceeds Rs. 2,000, with the merchant bearing the cost rather than the customer. The bigger point is behavioural. UPI has become a part of everyday spending because it is fast, convenient and almost frictionless. Consumers have also become accustomed to paying small charges on digital platforms when they are clearly built into the transaction. For example, delivery platforms may add platform or convenience fees directly to the customer's bill, yet these relatively small charges have not prevented the continued growth of digital consumption. A small fee across a massive transaction base can create a meaningful revenue opportunity without materially changing user behaviour. The impact varies by transaction type. Here’s a quick breakdown of when MDR applies and who bears the cost.

 

 

Key MDR rates to keep in mind

 

 • Standard: 0.4% on merchant payments above Rs. 2,000, capped at Rs. 300 per transaction.

 • Essential services: Flat Rs. 5 for telecom, fuel, insurance and railways.

• Capital markets: 0.02% on mutual fund and stock market transactions.

 

Does This Touch Your Investments?

 

 If you invest through a monthly SIP, your payment typically goes through UPI AutoPay, a recurring auto-debit mandate. These payments are exempt from the new MDR, so the entire SIP amount continues to be invested. One-time lump-sum investments are treated differently. These transactions attract a much lower 0.02% MDR, capped at Rs. 300. Importantly, the fee is borne by the mutual fund company or platform, not the investor, so your investment amount remains unaffected.

 

Sizing The Opportunity

 

 Zooming out, UPI’s scale creates a meaningful monetisation opportunity. Goldman Sachs estimates UPI merchant (P2M) transactions at $1.13 trillion annually, rising   to $1.44 trillion by FY28, or around 27% growth. Of the current $1,131 billion, $769 billion (68%) comes from transactions above Rs. 2,000, forming the key pool for   MDR economics

 

 

  From this, $230 bn relates to categories such as telecom, fuel, insurance and railways, which follow a different fee structure. This leaves $539 bn as the standard     MDR pool.

  At 40 bps: $539 bn × 0.40% = ~$2.2 bn

  Capital-market transactions of around $80 bn are shown separately and carry a lower MDR of 2 bps.

 

 

 Our view on the calculation

 

There is another way to look at this calculation. If the $80 bn capital-market transactions are already included in the $539 bn pool, they should be separated before applying the 40 bps rate.

 

 In that case:

$539 bn − $80 bn = $459 bn

$459 bn × 0.40% = $1.84 bn

 Plus: $80 bn × 0.02% = ~$0.02 bn

This gives a total revenue pool of around $1.85 bn, compared with the $2.2 bn estimated by Goldman Sachs

 

Who Stands To Gain

 

 The Goldman Sachs estimate assumes the revenue is shared across the UPI ecosystem:

 

 

 

 

Disclaimer: The above list is illustrative and not exhaustive. Other companies may also have exposure to the UPI ecosystem. The information is for informational purposes only and does not constitute an investment recommendation.

 

HDFC Bank, ICICI Bank, Axis Bank and SBI show up on both sides of the transaction as issuer banks and as acquiring banks giving them the broadest exposure to this new revenue pool. One 97 Communications (Paytm) is the cleanest listed, pure-play way to get exposure to the TPAP/UPIapp share. NPCI sits underneath all of it as the core infrastructure, though it isn't a listed entity.

 

 UPI has already built a massive transaction base, and the next opportunity could come from monetising a part of this volume through MDR. While the exact revenue   opportunity depends on how different transaction categories are treated, even a small fee on a large transaction base can create meaningful revenue for banks and   payment platforms.

 

 For investors, the key point is not the fee paid on an individual transaction, but the potential scale of the overall UPI revenue pool as transaction volumes continue to   grow.

 

 Prepared by Sakshi Rawat | Research Analyst

 

Disclaimer: This report is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. The information is based on publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Views expressed are subject to change without notice. Investors should conduct their own due diligence and consult a qualified financial advisor before making investment decisions.