Proposed UPI fee on payments above ₹2,000 could reshape merchant checkout costs
India is reportedly set to introduce a 0.4% merchant discount rate on UPI transactions above ₹2,000 from Oct. 15. Bernstein estimates the change could create up to $1.1 billion in annual payment-app revenue by March 2028, largely benefiting PhonePe and Google Pay while raising costs for larger merchants.
What happened
India plans a 0.4% MDR on UPI payments above Rs 2,000 from October 15. Bernstein estimates up to $1.1 billion in annual app revenue by March 2028, led by
Key facts
- 0.4% merchant discount rate on UPI transactions above Rs 2,000
- Up to $1.1 billion annual payment-app revenue by March 2028
- PhonePe and Google Pay could capture around $900 million
- PhonePe and Google Pay account for around 80% of UPI transaction value
- 30% proposed market-share cap
Why this matters
Payments platforms, merchant acquirers and commerce players should reassess partnerships with leading UPI apps as monetization could raise the strategic value of distribution, acceptance and merchant-services assets.
What to watch
- Official NPCI, RBI, Ministry of Finance or government notification confirming the rate, threshold, effective date, merchant categories and tax treatment.
- Whether MDR applies only to P2M UPI, includes QR and online checkout flows, or exempts certain merchant segments and public-interest categories.
- Merchant association responses and evidence of price pass-through, payment-method steering or reduced high-value UPI acceptance.
- PhonePe, Google Pay, Paytm and payment-aggregator announcements on merchant pricing, rebates, settlement products and value-added-service bundles.
- Changes in UPI transaction mix above ₹2,000, average ticket size, failed-payment rates and conversion at high-value checkout.
- Any expansion of MDR to lower transaction bands, credit-on-UPI, or additional payment rails.
- Model the blended payment-cost impact by average order value, share of UPI transactions above ₹2,000 and current acquiring costs.
- Prepare checkout-routing and payment-steering options for high-value baskets without creating customer friction or violating payment-network rules.
- Reopen commercial negotiations with payment aggregators, banks and UPI apps; seek volume-based rebates, settlement incentives and bundled fraud or credit services.
- Review whether surcharge, convenience-fee or discount structures can legally and competitively offset higher MDR.
- Segment exposure across stores, ecommerce, marketplaces, travel-like categories and B2B sales, where ticket sizes are most likely to exceed the threshold.
- Track competitors' payment promotions, especially whether large marketplaces subsidize MDR to preserve conversion.