India’s UPI Fee Revenue Outlook Pushes Payment Stocks Higher

Stocks of leading payment firms in India gained on September 16 on prospects of UPI fee revenue. Over the last decade, the Unified Payments Interface (UPI) has enabled merchants in India to use mobile phones to scan QR codes for payments. 

After six years of free use, the National Payments Corporation of India (NPCI) introduced a 0.4% UPI fee on merchant transactions above ₹2,000, roughly $21, starting October 15. 

Which Stocks Gained on UPI MDR Revenue?

Shares of Paytm, Yes Bank, and Axis Bank rose by 2% to 8% in early morning trading. Mobikwik and Pine Labs also gained 6.5% and 2.2%, respectively, before settling at 3.2% and 1%. 

The ​0.4% UPI fee paves the way for banks and payment firms to generate revenue. These entities have offered free payments through the Unified Payments Interface (UPI) since authorities suspended charges in January 2020 to increase adoption. Brokerage firms have termed the decision to charge UPI-based transactions structurally positive. 

However, they argue that revenue will vary depending on the transaction mix, fee-sharing arrangements between shareholders, and exemptions. For a long time, industry actors have argued that digital payments were increasingly becoming unsustainable since free transactions limited their ability to invest. 

"The framework marks a shift away from the zero-MDR regime and establishes a transaction-linked revenue model with the aim of strengthening the long term sustainability of UPI," JP Morgan analysts ​said, as cited by Reuters.

The NPCI maintained zero-MDR for person-to-person transactions and small traders who receive a maximum of up to ₹100,000, which is about $1,041 a month. The authority also capped fees on essential services at ₹5 for UPI payments above ₹2,000. 

What is the Revenue Potential of UPI Merchant Fees?

Analysts suggest that UPI fees could unlock millions of dollars in revenue for banks and other digital payment firms. Citi placed annual revenue projections at ₹ 160 to ₹170 billion, roughly $1.7 to $1.8 million. The financial institution expects 60% of this revenue to go to banks while app providers and aggregators receive 25% and 15% respectively. 

Under its high-end scenario, Goldman Sachs projected 40%–70% in potential gains for Paytm, relative to its FY2028 EBITDA. Jefferies raised its target price for the fintech firm to ₹2,150. The financial group also raised the target price for Pine Labs to ₹235. Emkay, on the other hand, increased its targets for Paytm and Pine Labs to  ₹2,400 and ₹230, respectively.

According to Citi, Yes Bank stands to benefit more from UPI fees, followed by Bank of Baroda, IndusInd Bank and Punjab National Bank. Bank of Baroda stock rose 1% while that of Punjab National Bank gained 1.5% in September 16 trading. 

Impact of UPI Fees on India’s Fintech Industry

By creating sustainable revenue, India’s UPI fees could fuel fintech growth. Monetization will enable payment firms to invest in technology, expand merchant networks, and develop new digital financial services. As UPI adoption and transaction volumes grow, the shift toward monetization will likely support the expansion of India’s digital payments ecosystem.