The end of the zero merchant discount rate (MDR) on select Unified Payments Interface (UPI) transactions is opening a new revenue opportunity for payment companies. From October 15, 2026, a 0.4% MDR will apply to eligible person-to-merchant (P2M) UPI transactions above Rs 2,000, while several smaller and specified transactions will remain outside the full-rate structure.
For companies such as Paytm and Pine Labs, the change could turn some previously non-monetised transactions into a source of revenue. But how much will actually reach their books? That depends on transaction value, exemptions, revenue sharing and the portion of MDR each company can retain.
Financialexpress.com spoke to a host of analysts. Here is what analysts and market observers expect –
Pine Labs could get access to larger revenue pool
Sunny Agrawal, head of Fundamental Research at SBI Securities sees a potential annual MDR pool of around Rs 20,000-22,000 crore. According to the brokerage report, merchant acquirers could account for around 30% of this pool, while UPI applications could get about 20%.
Pine Labs operates in the merchant acquiring and payment acceptance space, while Paytm has a significant UPI application business.
Agrawal said, “On the basis of our rough estimation, out of the potential annual MDR pool of Rs 20,000-22,000 cr, the merchant acquirer share will be 30%, where Pinelab sits. UPI app share is likely to be 20% where Paytm sits. Hence, in terms of opportunities, Pinelab does have a larger revenue pool.”
However, the entire 0.4% MDR will not become revenue for either company. Agrawal expects around 20-30% of annual gross merchandise value (GMV) for both players to be eligible for MDR. It assumes a take-rate of around 2-3 basis points from the overall 40 basis points.
He estimates an incremental earnings contribution of Rs 50-100 crore for Pine Labs. This is significant against its fiscal 2026 reported profit after tax (PAT) of Rs 113 crore.
For Paytm, he estimates an incremental earnings contribution of Rs 100-200 crore against FY26 PAT of Rs 552 crore.
“One the basis of a back of the envelope computation, we expect incremental earning contribution for Pinelabs to be around Rs 50-100 crore which can be huge on the base of Rs 113 crore FY26 reported PAT. The same number can be to the tune of Rs 100-200 crore for Paytm on the base of FY26 reported PAT of Rs 552 crore ,” Agrawal added.
Agrawal also pointed out that MDR is not the only monetisation opportunity for these companies.
“Kindly note, along with MDR there are many other options to monetise other financial services and products like PoS, Soundbox, EMI etc. Overall, it seems that the magnitude of the favourable impact is more for Pinelabs,” he highlighted.
Paytm a preferred play after 0.4% MDR kicks in on Oct 15
Sameer Sawant, Research Analyst at Mirae Asset Sharekhan, sees Paytm as the preferred play because of its presence on both sides of a UPI transaction.
“Paytm would be preferred play on the end of zero MDR. The core driver is that it is the only listed company positioned to earn on both sides of a UPI transaction,'” he said.
Sawant noted, “On the consumer side, Paytm is a UPI app. When a customer pays from the Paytm app, it earns the share allotted to app providers. On the merchant side, Paytm is a payment aggregator whose QR codes and Soundboxes sit at millions of shops which allows it to earn from other end of the transaction as well.”
Furthermore, he added, “Pine Labs benefits only on the merchant side, and its large enterprise clients will negotiate fees hard. On net pass-through, the headline 40 bps shrinks quickly. After 2 bps goes to the UPI fund, issuing banks take ~15 bps and payer PSP banks ~4bps. Aggregators must split the acquirer’s share with partner banks, leaving roughly 4–5 bps.”
Also, only payments above Rs 2,000 qualify which is around 4% of transactions by count but two-thirds by value.
“Entire UPI ecosystem could see incremental annual revenue of Rs16000 to 18000 crores of which ~40% share could move to UPI app providers and payment aggregators,” added Sawant.
Paytm gets a higher earnings boost: Jefferies
Jefferies has also increased its estimates after the 40-basis-point MDR was notified. The brokerage had earlier assumed a 25-basis-point MDR for Paytm.
According to the brokerage report, Jefferies now expects the higher MDR revenue pool to lift Paytm’s fiscal 2028-29 earnings by another 10-12%. It has raised its price target to Rs 2,150 from Rs 2,100. This translates to an upside potential of around 20% from the current market price.
For Pine Labs, Jefferies estimates an incremental revenue opportunity of Rs 1.6 billion by fiscal 2028. This could represent around 20% of its estimated fiscal 2028 earnings before interest and tax and PAT.
The brokerage has therefore raised its Pine Labs price target to Rs 235 from Rs 180. This
Paytm vs Pine labs: Take-rate will decide the actual benefit, says Emkay
Emkay has taken a more detailed approach. It has considered the share of transactions that will actually qualify for MDR and how much of the fee each company can retain.
Emkay report said, “On conservative assumptions (ie 10bps/6bps realized take-rates for Paytm/Pine Labs), we estimate FY28 UPI MDR revenue of Rs 11.2 billion/Rs 1.55 billion, respectively.”
For Paytm, Emkay assumes that 85% of GMV comes from UPI P2M transactions. Of this, only 35% by value is considered MDR-eligible. For Pine Labs, the brokerage estimates fiscal 2028 UPI P2M gross transaction value (GTV) at Rs 3 lakh crore, with 86% above the Rs 2,000 threshold.
The difference is important. A transaction being above Rs 2,000 does not automatically mean the full 0.4% MDR applies. Certain sectors have lower or capped charges.
For Paytm, Emkay estimates that the new MDR revenue stream could add Rs 43,400 crore to Paytm’s valuation. The brokerage has set a price target of Rs 2,400 for the stock.
For Pine Labs, Emkay estimates that the new MDR revenue stream could add Rs 5,120 crore to Pine Labs’ valuation. It has set a price target of Rs 230 for the stock.
What should investors watch?
The headline 0.4% MDR may look straightforward, but the actual earnings impact is more complicated. The fee has to be distributed across different participants in the payment ecosystem, while exemptions and caps will reduce the effective pool.
The bigger change, however, is that UPI merchant acquiring is moving towards a recurring commercial revenue model. Emkay said, “This will make the payment business structurally self-sustaining, making the business model much more resilient.”
For Paytm and Pine Labs, the next few quarters will therefore depend on three things – how much UPI transaction value becomes eligible, what take-rate each company retains and how quickly merchants adjust to the new MDR regime.
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.