UPI MDR Return May Strengthen PhonePe, Google Pay & Paytm’s Merchant Dominance

The likely return of Merchant Discount Rate (MDR) on UPI transactions could further strengthen the dominance of major digital payment platforms such as PhonePe, Google Pay and Paytm in merchant payments.

MDR refers to the commission paid by businesses to banks and payment ecosystem participants for processing digital transactions.

According to a report by Moneycontrol, the rate for UPI merchant payments is expected to be around 25-30 basis points, which could generate significant revenue for the payments industry.

Gain From MDR Revenue

According to estimates cited in the report, PhonePe and Paytm could earn nearly ₹700 crore annually from MDR collections, while Google Pay could generate around ₹500 crore.

Industry observers believe these platforms are likely to benefit because of their strong presence in merchant acquisition and extensive payment networks.

Paytm founder and CEO Vijay Shekhar Sharma had earlier told investors that since major investments in infrastructure and merchant networks have already been made, a large portion of MDR revenue could directly contribute to profitability.

The top three UPI apps have built strong merchant ecosystems, giving them greater bargaining power with banking partners while negotiating revenue-sharing arrangements. This could allow them to secure better terms compared with smaller competitors.

Industry participants believe smaller UPI apps could struggle to secure an equal share of MDR revenue due to limited merchant acquisition capabilities and weaker negotiation power.

A founder of a smaller UPI platform said larger apps could use their stronger position with partner banks to secure better revenue shares, allowing them to offer higher incentives and cashback benefits to users. This could widen the gap between leading and smaller players in the UPI market.

In traditional card payment systems, issuing banks generally receive the largest share of MDR revenue through interchange fees, often accounting for around 80% of collections. However, the UPI ecosystem is structured differently.