A recent Finance Ministry report mentioned that UPI has emerged as the most preferred mode of transaction and that it accounts for 57% of the payments.
According to a Bernstein report, UPI accounts for around 90% of total cashless payment volumes and more than 70% of value.
Yet, it raises a question: if most UPI transactions carry zero merchant discount rate (MDR), where is the money coming from for payment platforms?
What’s funding the payment platforms?
Cashless payments now make up roughly 50% of private final consumption expenditure in India, the report further added.
But there is no fee due when you make a UPI transaction. With zero merchant discount rate (MDR) on UPI transactions since 2020.
Furthermore, the report states that Peer-to-peer (P2P) UPI payments form a significant share of volumes, but contribute less than 10% of the net revenue pool.
These transactions typically generate only a small fixed fee shared among banks and app providers, translating into a take rate of about 0.3–0.4 basis points of transaction value.
A Rs 15,000 crore net revenue pool
According to Bernstein, monetisation for platforms such as Paytm and PhonePe “has improved meaningfully in recent years.” This is reflected in an estimated net revenue pool of about Rs 15,000 crore in FY25, translating into a gross revenue pool of roughly Rs 250,000 crore.
The Rs 250,000 crore gross figure is the total money earned from payments. After deducting the costs of processing transactions, such as technology and banking fees, what remains is about Rs 15,000 crore in net revenue. In other words, even without lending or financial distribution, payments alone are generating meaningful scale.
Merchant side drives 75% of revenue
The biggest insight from the report is that monetisation is concentrated on the merchant side. While consumer transactions account for most volumes, merchant payments contribute roughly 75% of the net revenue pool. Within consumer-to-merchant (P2M) payments, being on the merchant-acquiring side is significantly more lucrative than being on the consumer side.
Several segments are driving this improvement in monetisation. Credit card processing remains a key contributor. Credit card spending has grown at over 20% annually in recent years and typically carries higher fees than standard UPI debit transactions. As a result, platforms earn more per transaction when consumers use credit cards, the report added.
Bill payments are another important source of revenue. The Bharat Bill Payment System (BBPS) processed over Rs 10 trillion in FY25, with transaction volumes rising about 80% year-on-year. Unlike regular UPI transfers, bill payments allow platforms to charge higher fees, often earning 8–10 basis points on these transactions.
According to the report, payment devices such as POS machines and soundboxes have also added a steady income stream. These devices generate rental income from merchants, similar to a subscription model. In FY25, device rentals contributed about Rs 2,000 crores to the overall revenue pool.
Overall, Bernstein estimates the blended net payment margin at about 5–6 basis points of transaction value. Platforms more focused on merchant payments tend to earn 8–15 basis points. This helps explain why platforms with a stronger merchant mix can generate higher revenue despite processing lower transaction value than peers.
Credit mix could lift margins further
Looking ahead, Bernstein expects the net revenue pool to grow at about 20% annually over the next five years, reaching roughly Rs 38,500 crore by FY30, with gross revenues of around Rs 65,000 crore. Cashless payment volumes are projected to grow at a similar pace.
A key lever for margin expansion is a higher share of credit-based payments. Currently, credit-based payments account for about 20% of cashless payment value. Bernstein expects this to rise to at least 25% by FY30. A 5-percentage-point increase in credit share could lift industry payment margins by around 0.7 basis points.
The rapid rise of RuPay credit cards on UPI, now estimated to account for about 40% of total credit card transaction volumes and roughly 8% by value, is attributed to how monetisation layers are being built on top of UPI rails, the report added.
Beyond payments: The optionality of credit
Even with a Rs 15,000 crore net pool, payments monetisation per user remains modest. Payment platforms earn less than Rs 300 per customer annually, with profit per customer well below Rs 150, the report added. By comparison, SBI Cards earns about Rs 2,000 in profit before tax per active card.