UPI’s zero merchant discount rate regime is set to change from October 15, with Citi, JP Morgan and Morgan Stanley assessing the impact of new merchant charges on banks and the wider payments ecosystem.
Citi has provided the most detailed bank-level assessment, identifying Yes Bank as the biggest potential beneficiary, followed by several other lenders. JP Morgan estimates the new framework could create an annual revenue pool of around Rs 17,000 crore across the UPI ecosystem, while Morgan Stanley also sees Yes Bank as a relative beneficiary.
| Bank | Estimated PBT benefit | Brokerage |
| Yes Bank | 6% to 12% | Citi |
| Bank of Baroda | Around 2% | Citi |
| Punjab National Bank | Around 2% | Citi |
| IndusInd Bank | Around 2% | Citi |
| Axis Bank | 1% to 2% | Citi |
| State Bank of India | 1% to 2% | Citi |
| Federal Bank | 1% to 2% | Citi |
| HDFC Bank | Below 1% | Citi |
| ICICI Bank | Below 1% | Citi |
| Kotak Mahindra Bank | Below 1% | Citi |
| AU Small Finance Bank | Below 1% | Citi |
Citi names Yes Bank and other potential banking beneficiaries
Citi said the new UPI merchant discount rate framework will bring an end to the zero-MDR structure for larger merchant payments while retaining free person-to-person transactions. The brokerage noted that around 96% of person-to-merchant transaction volumes would remain outside the new charges, covering transactions up to Rs 2,000 and small merchants receiving up to Rs 1 lakh a month.
Citi expects net incremental revenue for the UPI ecosystem at around Rs 16,000 crore to Rs 17,000 crore a year. The brokerage estimates that roughly 60% could accrue to the banking system, 25% to UPI application providers and 15% to non-bank payment aggregators.
For larger eligible merchant payments, the merchant discount rate will be 0.4%, with a cap of Rs 300 for transactions above Rs 75,000, according to Citi. Essential services will receive concessional treatment, while capital market transactions will carry a 0.02% rate, subject to a Rs 300 cap.
Citi described the new framework as a long-awaited monetisation opportunity for banks with substantial UPI volumes. “We view this as a structurally positive, long-awaited monetization event for UPI-heavy banks and Third-Party Application Providers (TPAPs),” Citi said.
Citi estimated that Yes Bank could see a 6% to 12% increase in profit before tax from the new framework. The brokerage also identified Bank of Baroda, Punjab National Bank and IndusInd Bank as potential beneficiaries, estimating around 2% PBT benefit for each.
Axis Bank, State Bank of India and Federal Bank could see a 1% to 2% PBT benefit, Citi estimated. HDFC Bank, ICICI Bank, Kotak Mahindra Bank and AU Small Finance Bank could see a benefit of less than 1%, the brokerage added.
JP Morgan sees Rs 17,000 crore UPI revenue pool
JP Morgan said the UPI Steering Committee has formally introduced a merchant discount rate on selected bank-account-funded person-to-merchant transactions from October 15. Large merchants will pay 40 basis points on transactions above Rs 2,000, subject to a Rs 300 cap per transaction, according to the brokerage.
Small merchants receiving up to Rs 1 lakh a month through UPI QR codes under the person-to-person merchant category will remain exempt. Essential services such as railways, telecommunications, insurance, fuel and agricultural inputs will carry a flat Rs 5 charge, while capital market transactions will attract 2 basis points subject to a Rs 300 cap. Person-to-person transactions will remain free.
Unlike Citi, JP Morgan does not provide a comparable list of individual bank-level PBT beneficiaries in the material reviewed. Instead, the brokerage focuses on the size of the revenue pool and how it could be distributed across the UPI ecosystem.
JP Morgan pointed out that the additional revenue could support investment in payment infrastructure, particularly in rural and semi-urban areas.
“The revenues generated should help with the expansion and improvement in payment infrastructure, especially in rural and semi-urban areas along with investments in cyber security infrastructure, AI-driven fraud detection, encryption upgrades, etc. There is also a strong focus on customer protection with no charges for customers for UPI payments,” JP Morgan explained.
JP Morgan estimated the maximum annual revenue pool at around Rs 17,000 crore. The brokerage calculated that the combined issuer and acquiring banking system could account for about Rs 11,700 crore, while UPI application providers could receive around Rs 3,400 crore and payer payment service providers around Rs 1,700 crore.
The brokerage explained that the 40-basis-point merchant discount rate would be distributed among several participants. JP Morgan estimates that 12 basis points would be retained by the acquiring bank, 16 basis points would go to the remitter or issuing bank as interchange, 8 basis points to the third-party application provider and 4 basis points to the payer payment service provider.
Morgan Stanley sees Yes Bank gaining but questions final profit impact
Morgan Stanley also identified Yes Bank as a relative beneficiary of the new merchant discount rate framework. The brokerage, however, cautioned that the final impact on bank profits could be lower than its earlier estimate because the MDR will be divided among different participants in the UPI ecosystem.
Morgan Stanley expects the effective rate to be below the headline 40 basis points because of exemptions, concessions and transaction caps.
“In banks, while Yes Bank should relatively gain more, we await details like split of MDR among constituents to assess impact on PBT; likely to be much lower than 10%, we estimated previously,” Morgan Stanley noted.
The brokerage noted that the 40-basis-point headline rate applies to eligible large-merchant transactions, while exemptions and concessions will reduce the blended rate. Morgan Stanley said specified categories would carry a Rs 5 charge, while capital market transactions would attract 0.02% subject to a Rs 300 cap.
Morgan Stanley also pointed out that UPI mandates and AutoPay have no prescribed merchant discount rate under the framework. The brokerage added that a dedicated fund has been proposed for small merchants, along with financial assistance for merchant onboarding.
Yes Bank gets the clearest bank-level call, while JP Morgan takes a wider view
The three brokerages approach the new UPI fee structure differently. Citi provides the detailed bank-level assessment, with Yes Bank at the top of its list and Bank of Baroda, Punjab National Bank, #IndusInd Bank, Axis Bank, State Bank of India, Federal Bank and other lenders also featuring in its estimates.
JP Morgan does not name a similar group of individual banks in the material reviewed. Its focus is on the overall Rs 17,000 crore revenue opportunity and the share that could accrue to issuing and acquiring banks.
Morgan Stanley specifically named Yes Bank also, as a relative beneficiary but takes a more cautious view of the eventual earnings impact, saying the benefit could be much lower than its earlier estimate of around 10%.
The new framework will create a potential fee stream for banks and other payment ecosystem participants from October 15. The eventual benefit for individual institutions will depend on eligible transaction volumes, exemptions and how the MDR revenue is distributed across the ecosystem.
Disclaimer: This article is based on analysis, estimates and commentary published by Citi, JP Morgan and Morgan Stanley on the UPI merchant discount rate framework. The bank-level PBT estimates in this article and the accompanying table are specifically Citi’s estimates and should not be read as estimates provided by JP Morgan or Morgan Stanley. JP Morgan’s figures relate primarily to the potential size and distribution of the overall UPI revenue pool, while Morgan Stanley has separately assessed the potential relative benefit for Yes Bank and raised questions about the final earnings impact. All revenue figures, PBT estimates, transaction assumptions and potential benefits cited in the article are brokerage estimates and are subject to change based on the final implementation of the framework, transaction volumes, exemptions, merchant categories, applicable caps and the distribution of MDR revenue among banks, payment service providers, UPI application providers and other ecosystem participants. The estimates represent the views and assumptions of the respective brokerages and should not be treated as guaranteed financial outcomes. Readers should independently assess the underlying reports, assumptions and risks before making any investment decision. This article is intended for informational and news-reporting purposes only and does not constitute investment advice, a recommendation to buy or sell any security, or a representation of the future financial performance of any bank or payment company.