Will UPI MDR be a windfall for Paytm, Pine Labs? Here’s what analysts say

NPCI’s introduction of a 0.4% merchant discount rate (MDR) on UPI person-to-merchant (P2M) transactions above ₹2,000 is set to create a recurring revenue stream for payment acquirers such as Paytm and Pine Labs, according to Emkay Research.

The new framework, effective October 15, 2026, leaves the mass market untouched. Person-to-person (P2P) transfers, P2M transactions below ₹2,000 and small P2PM merchants will continue to remain free. Select categories will also attract lower or capped MDR, the brokerage said.

While 67% of P2M transactions by value are above ₹2,000, Emkay expects the actual MDR-eligible gross merchandise value (GMV) to be lower because some categories have capped or lower MDR rates.

“The more important signal, in our view, is that UPI acquiring now carries a commercial revenue model that is contractual, recurring, and scales with value, in place of a discretionary annual subsidy,” the brokerage said.

“This will make the payment business structurally self-sustaining, making the business model much more resilient,” it added.

UPI MDR could unlock fresh revenue stream

Emkay estimates FY28E UPI MDR revenue at ₹1,120 crore for Paytm and ₹155 crore for Pine Labs. It has maintained its ‘BUY’ rating on both stocks.

“We assume Paytm retains 10bps and Pine Labs 6bps of the pool—25% and 15%, respectively—blended across the 0.4% headline slab, the flat ₹5 categories, and the 0.02% capital-market slab,” it said.

The brokerage expects the revenue stream to grow in line with its GMV CAGR of 21.5% over FY28-32E, before tapering to 15% over FY33-42E. It assumes a 5% terminal growth rate and WACCs of 12.7% for Paytm and 14.2% for Pine Labs.

This would result in incremental market-capitalisation/enterprise-value accretion of ₹43,400 crore for Paytm and ₹5,120 crore for Pine Labs, equivalent to ₹678 per share and ₹42 per share, respectively.

How MDR will be distributed

Under the new framework, the 40 basis points (bps) MDR will be distributed among participants in the UPI ecosystem. The issuing bank will receive 16 bps, the acquiring bank 12 bps, the payer third-party application provider (TPAP) 8 bps and the payer PSP bank 4 bps.

Acquirers such as Paytm and Pine Labs would receive the acquiring bank’s 12 bps share. Emkay estimates a realised take-rate of 10 bps for Paytm and 6 bps for Pine Labs.

“For Paytm, we assume UPI P2M constitutes 85% of GMV, of which 35% by value is MDR-eligible or ₹1.12 lakh crore in FY28E,” the brokerage said. The lower eligible proportion factors in categories subject to MDR caps.

For Pine Labs, Emkay estimates UPI P2M GTV at ₹30,000 crore in FY28E, or around 12% of DITP GTV. Of this, 86% by value is above the ₹2,000 threshold, resulting in MDR-eligible GTV of ₹25,800 crore, or around 10% of DITP GTV.

What the framework covers

The 0.4% MDR will be capped at ₹300 for transactions of ₹75,000 and above. Specified sectors, including railways, telecom, insurance, fuel and agricultural inputs, which account for around 46% of UPI P2M transaction value, will pay a flat ₹5 per transaction for payments above ₹2,000.

Capital-market payments, including mutual funds, securities and stockbroking/dealer transactions, will attract an MDR of 0.02%, also capped at ₹300.

Small merchants receiving up to ₹1 lakh a month through UPI QR codes under the P2PM classification will continue to pay zero MDR.

The framework applies only to direct account-to-merchant-account UPI transactions and excludes UPI-linked credit card payments. Emkay expects it to affect only around 4% of overall merchant transaction volume.

Key risks

The brokerage flagged the eventual interchange-sharing formula as a key risk, as the circular leaves the mechanism open. Other risks include potential value leakage to merchants through competitive discounting as acquirers compete for large-ticket flows, and elasticity at the ₹2,000 threshold, which has not been factored into its estimates.