The UPI Merchant Discount Rate (MDR) is set to be implemented from October 15, introducing a 0.4% charge on business transactions paid via UPI, a move expected to significantly boost profits for the banking sector and Third-Party Application Providers (TPAPs). This new framework exempts person-to-person transactions, and while customers won't be directly charged, businesses may incorporate these fees into their general pricing. The announcement has already triggered a surge in the stock prices of companies like Paytm and various banks, as investors anticipate a substantial increase in revenue from UPI transactions. Financial analysts project the new policy could create a revenue pool of around ₹17,000 crore across the UPI ecosystem, with certain banks like Yes Bank expected to be major beneficiaries due to their significant market share in UPI transactions.

The UPI Merchant Discount Rate (MDR) is set to be implemented from October 15, introducing a 0.4% charge on business transactions paid via UPI, a move expected to significantly boost profits for the banking sector and Third-Party Application Providers (TPAPs). This new framework exempts person-to-person transactions, and while customers won't be directly charged, businesses may incorporate these fees into their general pricing. The announcement has already triggered a surge in the stock prices of companies like Paytm and various banks, as investors anticipate a substantial increase in revenue from UPI transactions. Financial analysts project the new policy could create a revenue pool of around ₹17,000 crore across the UPI ecosystem, with certain banks like Yes Bank expected to be major beneficiaries due to their significant market share in UPI transactions.

The UPI Merchant Discount Rate (MDR) is set to be implemented from October 15, introducing a 0.4% charge on business transactions paid via UPI, a move expected to significantly boost profits for the banking sector and Third-Party Application Providers (TPAPs). This new framework exempts person-to-person transactions, and while customers won't be directly charged, businesses may incorporate these fees into their general pricing. The announcement has already triggered a surge in the stock prices of companies like Paytm and various banks, as investors anticipate a substantial increase in revenue from UPI transactions. Financial analysts project the new policy could create a revenue pool of around ₹17,000 crore across the UPI ecosystem, with certain banks like Yes Bank expected to be major beneficiaries due to their significant market share in UPI transactions.

The UPI Merchant Discount Rate to be levied on business owners from October 15 is expected to generate significant profits for the banking sector and third-party application providers (TPAPs). These sectors are to benefit in multiple ways, including a boost to share prices, as investors predict a surge in UPI transaction-related revenue. 

Under the new framework, businesses will be charged a 0.4 per cent fee on the total price when customers pay through UPI. The levied fee will be split between the issuing bank, acquiring bank, TPAP and Payer Payment Service provider. 

The charges don’t apply to person-to-person transactions, which means regular payments between two people will not be charged. Though MDR is strictly prohibited from being levied from customers, businesses can still include these charges as general price increases. 

PayTM’s share price surged 4.62 per cent on Wednesday, a day after the MDR was confirmed, before it pared back. The rise in stock follows a regulatory filing by the company explaining the benefits of the UPI fee, which stated, “This will generate additional revenue from the merchant business for many of the payment transactions that were free earlier.”

Bank stocks are also rising after brokerages like JP Morgan, Morgan Stanley, and Citi emphasised the broader profit-before-tax benefits the UPI fee may bring. JP Morgan estimated that the new policy could create a revenue pool of around ₹17,000 crore across the UPI ecosystem. 

Nifty Bank traded at a high of 56,368.70, up by 573 points from the previous close of 55,794.75. Winners in Nifty Bank include Union Bank, Punjab National Bank, Axis Bank, State Bank of India and Kotak Bank. 

However, Citi and Morgan Stanley view Yes Bank as a relative beneficiary of the new policy as it holds a dominant market share of around 40 per cent in UPI beneficiary transaction volume. Citi expects the bank to see a 6 to 12 per cent increase in profit before tax under the new framework. 

“We view this as a structurally positive, long-awaited monetisation event for UPI-heavy banks and Third-Party Application Providers (TPAPs),”said Citi. 

However, Morgan Stanley advised caution till the exact MDR division is revealed. 

In banks, while Yes Bank should relatively gain more, we await details like the split of MDR among constituents to assess impact on PBT; likely to be much lower than 10%, we estimated previously,” Morgan Stanley noted.

However, the framework might significantly affect the profits of other businesses. While the new policy aims to protect street vendors and kirana stores from additional payments, a monthly revenue below ₹1 lakh is required for the charges to be inapplicable. This might be below the threshold for other small businesses, including small clinics, electric stores, and textile stores, which often receive payments above ₹2,000. 

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