UPI MDR: After Banks, PhonePe, Paytm and Google Pay Likely to Benefit Most

The implementation of Merchant Discount Rate (MDR) on UPI transactions enables PhonePe, Paytm, and Google Pay to reinforce their grip in the digital payments landscape, as these apps secure improved revenue-sharing agreements with banks, as per The Moneycontrol news report. 

Prevalence of MDR on UPI Transactions 

As per the report, the recent focus on MDR in the UPI ecosystem sets a revenue potential ranging from ₹13,500 crore to ₹16,000 crore annually. MDR is typically shared among various stakeholders including UPI apps, PSP banks, and merchant acquiring firms.  

PhonePe and Paytm are likely to earn around ₹700 crore annually from the MDR, while Google Pay anticipates earning approximately ₹500 crore. 

Role of Leading UPI Apps 

As top players in the UPI landscape, PhonePe, Paytm, and Google Pay command a larger share of the MDR collection compared to smaller competitors.  

Their stronghold in merchant acquisition equips them to obtain superior revenue-sharing terms with banks, putting smaller platforms at a disadvantage. 

MDR Sharing Framework 

Within the MDR ecosystem, the revenue division involves account-issuing banks, beneficiary banks, and payment service providers. NPCI receives a fixed switching fee of 0.02 bps per transaction. PSP banks and UPI apps aim to claim a portion of ₹4,000 crore to ₹5,000 crore. 

Read More: BSE Share Price in Focus After Q1 FY27 Earnings Results: Total Income Up 63.4% YoY! 

Implications for Small UPI Platforms 

As per the report, smaller UPI entities face difficulties competing with larger firms due to limited sales machinery for merchant acquisition. Consequently, their share of MDR income is not proportionate to their presence in the UPI market. 

Conclusion 

The MDR introduction on UPI transactions sets the stage for PhonePe, Paytm, and Google Pay to fortify their market position. With projected annual revenues of ₹700 crore for PhonePe and Paytm, and ₹500 crore for Google Pay, the MDR framework presents a shift favouring major players over smaller competitors in the UPI ecosystem. 

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