PhonePe Evaluates Restarting IPO Process Following NPCI Clarity on UPI Merchant Discount Rates — September 16, 2026

PhonePe Ltd is assessing options to restart its initial public offering (IPO) process after the National Payments Corporation of India (NPCI) introduced a 0.4% merchant discount rate (MDR) on high-value Unified Payments Interface (UPI) transactions. The move offers long-awaited clarity over revenue models and business sustainability for payment application providers.

The fintech major had previously put its domestic listing preparations on hold amid broader macroeconomic headwinds and regulatory uncertainties surrounding UPI monetization. While an immediate draft red herring prospectus (DRHP) filing is not expected right away, the regulatory certainty allows PhonePe to update its financial projections before approaching the Securities and Exchange Board of India (SEBI).

Breakdown of the New MDR Framework

The NPCI announced that starting October 15, person-to-merchant (P2M) UPI payments above ₹2,000 will attract a 0.4% MDR. Person-to-person (P2P) transfers and everyday micro-transactions will remain completely free of charge, leaving roughly 96% of overall UPI transactions unencumbered by the levy.

Key Commercial Parameters of the NPCI Mandate:

• Standard Rate: A 0.4% charge on merchant payments exceeding ₹2,000.
• Ceiling Limit: MDR is capped at ₹300 per transaction for payments of ₹75,000 and above.
• Concessional Categories: Flat MDR of ₹5 per transaction for specific utilities and essentials, including fuel, telecom services, railways, and insurance.
• Zero MDR Shield: Continued zero-cost status for peer-to-peer transfers and micro-merchants registered under the person-to-person merchant (P2PM) category receiving under ₹1 lakh per month.

Revenue Sharing and Ecosystem Impact

Under the structured fee waterfall, merchants will remit up to 0.4% to acquiring banks. Acquirers will transfer 0.28% to issuing banks as interchange. Issuers will then pass 0.12% to payer payment service providers (PSPs), which in turn route 0.08% directly to third-party app providers such as PhonePe and Google Pay.

This formula leaves 0.12% with the acquirer, 0.16% with the issuer, 0.04% with the payer PSP, and 0.08% with the consumer-facing app provider.

Reacting to the policy shift, PhonePe Founder and Chief Executive Officer Sameer Nigam noted that approximately 70 crore to 80 crore UPI transactions take place daily, and the framework will enable the payments industry to cover operational infrastructure costs and reinvest in technological scale. Nigam pointed out that around 60 lakh merchants already pay MDR between 1.5% and 2.5% on credit card transactions, making the 0.4% charge among the lowest globally and commercially acceptable.

Implications for Public Markets

PhonePe commands nearly half of India's UPI ecosystem by both transaction volume and value. For prospective public market investors, the introduction of MDR directly addresses the central critique surrounding consumer fintech platforms: volume dominance without organic payment transaction monetization.

With verifiable unit margins now built into higher-value digital payments, PhonePe's prospective listing is set to serve as a bellwether for how the Indian primary market values pure-play fintech infrastructure at scale.

Tags: PhonePe NPCI SEBI Fintech UPI Digital Payments