Goldman Sachs Projects UPI MDR Revenue Pool at 2.2 Billion Dollars Expanding to 2.7 Billion Dollars by FY28

In what is being hailed as the most significant structural shift in Indian digital payments since demonetisation, global brokerage firm Goldman Sachs has calculated that the newly introduced Merchant Discount Rate (MDR) framework on the Unified Payments Interface (UPI) will unlock an annual revenue stream of $2.2 billion (approximately ₹20,600 crore) at current run rates, expanding to $2.7 billion (around ₹22,000 crore) by FY28.

The development follows a formal circular issued by the National Payments Corporation of India (NPCI), supported by the Reserve Bank of India (RBI) and the Department of Financial Services. The directive removes the blanket zero-charge mandate that has governed UPI since late 2019, paving the way for sustainable merchant-side commercial monetisation.

Key Parameters of the New UPI MDR Framework

• Threshold and Rate: An MDR of 0.40% will be levied on eligible person-to-merchant (P2M) transactions exceeding ₹2,000, effective October 15.
• Upper Cap: The maximum fee per transaction has been capped at ₹300 for payments of ₹75,000 and above.
• Retail Shield: Everyday person-to-person (P2P) transfers and all P2M transactions valued under ₹2,000 will remain completely free of charges.
• Consumer Protection: Regulators have explicitly barred merchants and Third-Party Application Providers (TPAPs) from passing the surcharge on to retail users as convenience or platform fees.

Unlocking a Multibillion-Dollar Revenue Stream

According to Goldman Sachs' equity research desk, approximately 50% of the aggregate transaction value moving across the UPI rail is concentrated in transactions exceeding the ₹2,000 threshold. Although micro-transactions below ₹2,000 account for more than 95% of total volumes, high-ticket retail purchases, electronics, e-commerce, and merchant invoices generate the bulk of the rupee throughput, forming the foundation of the ₹20,600 crore ($2.2 billion) annual revenue pool.

The Reserve Bank of India noted that a balanced distribution of MDR across ecosystem participants will ensure long-term infrastructural stability, allowing payment processors to continually reinvest in cyber-resilience, server infrastructure, and fraud-detection systems.

Impact on Fintechs and Listed Banks

Brokerages across Dalal Street highlighted that the rule change transforms digital payments from a cash-burning customer acquisition funnel into an independently profitable vertical.

Goldman Sachs noted that the 0.40% rate is meaningfully higher than the 0.20% to 0.30% previously anticipated by the market, potentially driving a 40% to 70% upside to its FY28 EBITDA estimates for Paytm parent One97 Communications. In an optimistic adoption scenario, the brokerage forecasts an incremental ₹1,400 crore in EBITDA for Paytm in FY28 alone. Morgan Stanley similarly observed that EBITDA for prominent payment processors could jump by 38% to 48% over the FY28–FY29 horizon.

Market participants expect the revenue pool to be apportioned among the ecosystem stakeholders:

Expected Revenue Distribution Across Participants

• Issuing and Acquiring Banks: Projected to capture roughly 55% to 60% of the MDR pool (estimated at ₹11,000 crore to ₹14,000 crore), bolstering non-interest fee income for lenders such as State Bank of India, HDFC Bank, ICICI Bank, and Yes Bank.
• Third-Party Application Providers (TPAPs): App operators such as PhonePe, Google Pay, and Paytm are expected to capture 23% to 25% of the fee pool on the merchant acquiring side.
• Payment Aggregators and Network Operators: Non-bank aggregators and NPCI are anticipated to retain the remaining 15% to 20% to maintain clearing infrastructure.

Market Reaction and Outlook

Following the announcement, listed payment players and transaction-heavy banks witnessed immediate buying interest on domestic bourses. Shares of One97 Communications surged over 7%, while Yes Bank—which acts as the settlement backbone for several major consumer apps—advanced more than 4% in early trade.

While merchant adoption and potential pushback from trade associations will remain key variables to monitor, analysts agree that the framework formalises the economic viability of India's world-leading instant payment rail without burdening end consumers.

Tags: Goldman Sachs NPCI One97 Communications Reserve Bank of India Yes Bank Fintech