NEW DELHI, India — India’s payment aggregators are negotiating with sponsor banks for a larger share of the acquiring bank’s revenue from a new merchant discount rate on high value Unified Payments Interface transactions, potentially reshaping the economics of one of the world’s largest digital payment systems.
Under the new framework, merchants will pay a 0.4% merchant discount rate on UPI transactions above 2,000 rupees from October 15. Of that amount, 0.12% is allocated to the acquiring bank, while payment aggregators currently do not have a separate direct allocation and must negotiate their share with banks.
Payment aggregators seek greater revenue participation
Payment companies are reportedly seeking between 50% and 80% of the acquiring bank’s portion of the fee. The final arrangements are expected to depend on factors including transaction volumes, merchant relationships and the technology infrastructure provided by each payment aggregator.
For a hypothetical UPI transaction of 10,000 rupees, the 0.4% MDR would generate 40 rupees in fees. The acquiring bank would receive 12 rupees under the current framework, from which the payment aggregator could negotiate a portion.
The change is significant for companies that have built large merchant networks around UPI but have historically operated in an environment where direct monetization of many transactions has been limited.
New economics could reshape the payments market
Large payment aggregators such as Razorpay, Cashfree, PayU and Pine Labs could have greater negotiating leverage because of their transaction volumes, merchant bases and technology capabilities.
Some payment companies are also considering becoming direct participants in the UPI ecosystem rather than relying on sponsor banks. Direct membership could potentially allow qualifying firms to retain a greater portion of acquiring revenue while giving them more control over their payment infrastructure.
The discussions come as India’s digital payments market continues to expand rapidly, making transaction economics increasingly important for fintech companies. A clearer revenue model could encourage further investment in merchant technology, fraud prevention and payment infrastructure.
At the same time, higher transaction costs for merchants could influence payment behavior, particularly among businesses that process large volumes of higher value digital transactions.
For India’s fintech industry, the upcoming MDR implementation therefore represents more than a change in transaction pricing. It could alter how payment aggregators generate revenue, how banks and fintech companies share payment economics and how the next phase of UPI infrastructure develops.
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