New Delhi: India’s Unified Payments Interface (UPI) could generate a potential revenue pool of around ₹22,000 crore by FY28 if a Merchant Discount Rate (MDR) of 40 basis points is introduced across eligible transactions, according to brokerage firm Bernstein.

The estimate comes amid recent changes to the regulatory framework governing digital payments. The government has clarified that banks and payment system providers cannot impose direct or indirect charges on UPI transactions of up to ₹2,000. Payments made through RuPay-powered debit cards have also been protected from such charges.

While the latest rules do not automatically introduce MDR on higher-value UPI transactions, they could provide room for a selective fee structure in the future. Bernstein’s analysis looks at how such a framework could distribute the resulting revenue among banks, third-party payment application providers and other participants in the UPI ecosystem.

Bernstein estimates ₹22,000 crore opportunity

Bernstein estimates that a 40-basis-point MDR could create a revenue pool of approximately ₹22,000 crore by FY28, assuming that 50% of UPI transaction value becomes eligible for MDR.

The brokerage expects banks to be the biggest beneficiaries under such a framework. Banks collectively could capture around ₹14,000 crore, while third-party application providers, or TPAPs, could earn approximately ₹7,000 crore.

The estimates highlight the enormous scale of India’s digital payments ecosystem. Even a relatively small fee applied to a portion of UPI transactions could create a sizeable revenue opportunity because of the platform’s massive transaction volumes.

Who could get what from UPI MDR?

Bernstein has also mapped out how the potential ₹22,000-crore pool could be divided among different participants in the payments chain.

On the banking side, issuing banks could receive 30% of the economics, while acquiring banks could receive 25%. Payment service provider (PSP) banks could receive 5% each.

Among TPAPs, the brokerage estimates that merchant-side TPAPs could receive 23%, while consumer-side TPAPs could get 8%. The payment network could account for another 5%.

This distribution is based on Bernstein’s assessment of the potential economics and does not represent a final government-approved revenue-sharing arrangement. The eventual commercial split could change depending on the regulatory framework and negotiations between payment companies and their banking partners.

Higher-value UPI payments could be the focus

The possible return of MDR does not mean that every UPI transaction will suddenly attract a fee.

The government’s recent clarification specifically protects UPI transactions of up to ₹2,000 from direct and indirect charges. The move also keeps RuPay debit card payments outside the charging framework.

The government has separately maintained that consumers will not be charged for using UPI. Any future MDR is expected to target selected merchant transactions above a specified threshold rather than ordinary person-to-person transfers.

The Finance Ministry has said the vast majority of UPI transactions are expected to remain free for merchants as well.

Zero-MDR system could undergo a major change

UPI has operated under a zero-MDR regime since 2020, with banks and payment companies absorbing the cost of processing transactions.

The government has been working on changes to the legal framework that could replace the existing statutory zero-MDR structure with a notification-based system. Under such an approach, the government could specify which digital payment modes would continue to remain exempt from MDR.

Importantly, changing the legal framework would not by itself impose a fee on UPI. A separate decision would be required to determine whether MDR is introduced, which transactions would qualify and what rate would apply.

The government has also stressed that the objective is not to burden consumers but to ensure the long-term sustainability and resilience of India’s digital payments infrastructure. The proposed framework could help address growing expenses related to technology, cybersecurity, fraud prevention and infrastructure.

Payment companies could see a new revenue stream

A structured MDR framework could have significant implications for payment platforms that have struggled to monetise UPI transactions under the zero-MDR model.

For banks, the framework could provide a new source of transaction-linked income. For TPAPs and other technology providers, it could improve the economics of operating UPI platforms, particularly as transaction volumes continue to expand.

The potential revenue opportunity could also encourage greater investment in payment infrastructure and competition among financial institutions and technology companies.

However, the final impact will depend heavily on the MDR rate, the transaction categories covered and the revenue-sharing arrangement ultimately approved by regulators.

What the ₹22,000 crore estimate means

Bernstein’s projection is an estimate rather than a confirmed revenue figure. It is based on a specific scenario involving a 40-basis-point MDR and the assumption that half of UPI transaction value would qualify.

A lower MDR or a narrower eligibility threshold would reduce the potential revenue pool, while wider eligibility could increase it.

The development nevertheless marks an important point in India’s digital payments journey. UPI has become one of the world’s largest real-time payment systems, and the debate has now shifted from simply expanding transaction volumes to finding a sustainable economic model for the infrastructure supporting those payments.

For consumers, the immediate message remains that UPI payments up to ₹2,000 will not attract charges under the government’s latest clarification. Person-to-person transactions are also expected to remain free.

For banks, payment platforms and other participants, however, the possibility of a selective MDR framework could open up a potentially significant new revenue opportunity.

If Bernstein’s assumptions materialise, the UPI ecosystem could be looking at a ₹22,000-crore revenue pool by FY28, with banks and TPAPs accounting for most of the potential gains.