UPI Dominance Sparks MDR Debate for Sustainable Payments
By ThePip Desk
UPI’s 86.8% market share by FY27 necessitates targeted MDR on high-value transactions for ecosystem sustainability, suggests CareEdge.
India’s Unified Payments Interface (UPI) has solidified its position as the dominant retail payment method, with its transaction volume share surging to 86.8% by the June quarter of FY27. This rapid expansion now brings a focused discussion on the long-term sustainability of the UPI ecosystem.
CareEdge Analytics & Advisory highlights this significant growth from 73.6% in FY23. The firm’s report now suggests implementing targeted Merchant Discount Rates (MDR) on specific higher-value merchant transactions.
MDR Framework for Ecosystem Viability
CareEdge proposes MDR rates between 0.25% and 0.50%, which could generate a gross revenue potential of Rs 15,000–30,000 crore. Each 10 basis points of MDR is estimated to contribute approximately Rs 6,113 crore.
Parliament recently amended the Payment and Settlement Systems Act, 2007, to allow adjustments to the existing zero-MDR framework for UPI. This legislative change aims to establish a self-sustaining revenue model and foster greater competition among ecosystem participants.
Targeted Monetization Strategy
Under the amended framework, consumers will not face transaction charges, and all Person-to-Person (P2P) transactions will remain free. A nominal MDR, lower than those for debit or credit cards, is anticipated for a limited number of merchant transactions exceeding a specific threshold.
The ‘UPI and Services Steering Committee,’ led by the National Payments Corporation of India (NPCI), will assume responsibility for determining any applicable MDR. CareEdge’s analysis indicates that this approach targets high-value Payment-to-Merchant (P2M) transactions.
P2M transactions currently account for 29% of the total UPI transaction value. A significant 67.2% of these P2M transactions exceed Rs 2,000.
Rising High-Value Payments
This means only about 19.5% of the overall UPI transaction value as of FY26 could potentially fall under the proposed MDR threshold. The strategy is designed to concentrate on a narrow segment of the ecosystem.
The proportion of P2M UPI transactions above Rs 2,000 has grown from 15.1% in FY23 to 20.1% in Q1 FY27. This trend suggests a continued expansion of higher-value merchant payments on UPI.
While this expansion could boost revenue generation for the ecosystem, it might also increase merchants’ sensitivity to payment charges. The amendment seeks to reduce reliance on subsidies as transaction volumes continue their ascent.