SBI, HDFC Bank, BoB Among Biggest Beneficiaries If UPI Merchant MDR Returns

The country’s largest UPI account-issuing banks, including State Bank of India (SBI), Bank of Baroda, HDFC Bank, Union Bank of India and Punjab National Bank, are expected to benefit significantly if merchant discount rate (MDR) is introduced on UPI transactions.

According to estimates by bankers cited in a report by Moneycontrol, SBI could earn up to ₹3,000 crore annually from merchant UPI payments, while Bank of Baroda and HDFC Bank could generate around ₹800 crore each. Union Bank and Punjab National Bank may also earn nearly ₹700 crore each.

Issuing Banks Likely To Gain From MDR Revenue

In the UPI ecosystem, these institutions are referred to as remitter banks or account-holding banks, similar to issuing banks in the card payment system. SBI currently holds nearly 25% share in this segment due to its extensive customer base across the country.

Banks that maintain customer accounts could receive a significant portion of the MDR revenue through interchange fees. Industry estimates suggest issuing banks may receive around 60-70% of the MDR collected. Before UPI transactions became zero-MDR in 2020, issuing banks received nearly 70% of the MDR revenue.

The final revenue-sharing structure will be decided after the government issues a Gazette notification on UPI MDR. The NPCI Steering Committee on UPI will then determine how the collected MDR will be distributed among ecosystem participants.

MDR Revenue To Be Shared Across UPI Ecosystem

The proposed MDR rate is expected to be around 25-30 basis points. At a 30 bps rate, the UPI ecosystem could generate nearly ₹16,000 crore annually, while a 25 bps charge could generate around ₹13,500 crore based on merchant transaction values.

However, the levy is likely to apply only to high-value payments and large commercial entities. The final revenue potential will depend on the transaction categories covered under the policy.

MDR revenue is expected to be distributed among various participants, including remitter banks, beneficiary banks, payment service provider (PSP) banks, merchant acquiring entities, payment aggregators and the National Payments Corporation of India (NPCI).

NPCI, which operates the UPI network, receives a fixed switching fee per transaction. Meanwhile, PSP banks linked with major UPI apps such as PhonePe, Google Pay and Paytm may receive a larger share due to their role in connecting users and merchants to the UPI ecosystem.

The possible return of MDR could significantly alter the revenue model of UPI, which has so far operated largely without transaction charges for merchants.