India’s rapidly expanding unified payments interface (UPI) ecosystem could unlock a gross revenue opportunity of ₹15,000 crore to ₹30,000 crore through a targeted merchant discount rate (MDR) on select higher-value merchant transactions, according to a report by CARE Analytics and Advisory Pvt Ltd (CareEdge).
The report estimates that the FY25-26 UPI transaction-value pool potentially addressable for MDR stood at ₹61.13 lakh crore. Applying an MDR of 0.25%-0.50% to the relevant transactions could generate ₹15,000 crore to ₹30,000 crore in gross revenue for the digital payments ecosystem.
“With UPI processing nearly 24bn (billion) transactions in a single month, the ecosystem has reached a scale where sustainability of the underlying payment infrastructure is becoming as important as transaction growth,” said Tanvi Shah, senior director at CareEdge Advisory.
She said a targeted MDR framework could unlock a potential revenue pool of ₹15,000 crore-₹30,000 crore at MDR rates of 0.25%-0.50%, while the key questions would be how the revenue is distributed across the ecosystem and whether merchants are willing to absorb the associated cost.
CareEdge said the actual opportunity would depend on the final eligibility criteria and MDR rate.
The analysis comes as India’s payments ecosystem undergoes a structural shift from being predominantly cash-led to digitally dominant. Digital payment modes accounted for 99.8% of total transaction volume and 97.9% of transaction value in the first quarter (Q1) of FY26-27, according to CareEdge. The transformation has been supported by policy measures, interoperable infrastructure led by UPI, fin-tech adoption, financial inclusion and increasing merchant digitisation.
UPI Cements Dominance in Retail Payments
India’s retail payments ecosystem, in which UPI accounts for the majority of transaction volumes, has been recognised by the International Monetary Fund (IMF) as the world’s largest real-time payment system by transaction volume.
UPI’s share of retail payment volumes increased from 73.6% in FY22-23 to 86.8% in Q1FY26-27, with other payment modes becoming increasingly marginal. CareEdge attributed UPI’s dominance to its extensive QR acceptance, seamless real-time experience, near-zero cost structure and suitability for everyday transactions.
The Union government and the Reserve Bank of India (RBI) are also promoting the adoption of digital payments across the country, particularly in tier-2 and tier-3 cities. Initiatives such as the payments infrastructure development fund (PIDF) aim to accelerate digital payments in underserved regions.
High-value Merchant Payments at the Centre of MDR Proposal
While UPI transactions between individuals are expected to remain free, the potential MDR framework is focused on a relatively narrow segment of higher-value merchant transactions.
Person-to-merchant (P2M) transactions accounted for 29% of total UPI transaction value in FY25-26. Of the P2M transaction value, 67.2% involved transactions above ₹2,000. CareEdge estimates that this means only about 19.5% of the value of overall UPI transactions potentially falls within the proposed MDR threshold.
The share of P2M UPI transaction value involving payments above ₹2,000 has also been rising steadily. It increased from 15.1% in FY22-23 to 20.1% in Q1FY26-27, indicating a sustained shift towards higher-value merchant payments and an expanding pool that could be subject to MDR.
CareEdge estimates that every 10bps (basis points) of MDR on the relevant pool could generate about ₹6,113 crore. At an MDR of 0.25%-0.50%, the potential gross revenue opportunity could therefore reach ₹15,000 crore-₹30,000 crore.
Free UPI for Consumers, Targeted Charges for Merchants
The proposed approach is intended to balance the rapid expansion of UPI with the financial sustainability of the payments infrastructure. CareEdge said any future MDR is expected to be nominal and limited to select merchant transactions, while everyday consumer transactions and P2P payments would remain free.
The proposed amendment to the Payment and Settlement Systems Act is positioned as an enabling measure to develop a self-sustaining revenue framework, encourage greater participation and competition among ecosystem players, and reduce reliance on subsidies as transaction volumes increase.
For banks, payment service providers (PSPs) and third-party application providers (TPAPs), such a framework could offer a more sustainable means of meeting the rising costs of payment infrastructure, cybersecurity and fraud prevention.
However, merchants handling high-value UPI transactions could face additional costs. CareEdge noted that some merchants may seek to pass these costs on to customers, potentially encouraging users to shift to alternative payment methods.
UPI Reaches Massive Scale
The potential monetisation opportunity comes as UPI continues to scale rapidly. CareEdge said 741 banks were live on UPI and monthly transaction volumes had crossed 22bn (billion) transactions, with UPI transactions amounting to about ₹29.87 lakh crore in July 2026.
Kalpesh Mantri, assistant director at CareEdge Advisory, said the scale and depth of the UPI ecosystem reflected increasing adoption, expanding reach and the robustness of India’s digital payments infrastructure.
Focus Shifts from Growth to Sustainability
According to CareEdge the UPI ecosystem is entering a phase in which financial sustainability is becoming increasingly important alongside transaction growth. The payments infrastructure will need continued investment in cybersecurity, fraud prevention, research capacity and innovation as transaction volumes increase, it added.
The report said UPI is expected to maintain strong structural growth, supported by rising internet tele-density, expanding financial inclusion, merchant digitisation and regulatory support. It also expects continued innovation and global expansion to strengthen UPI’s position as the backbone of India’s payments landscape.
The emerging model, according to CareEdge, seeks to preserve UPI’s affordability and mass adoption while creating a more sustainable revenue mechanism for payment ecosystem participants. The report said targeted monetisation of higher-value P2M transactions could help support the infrastructure needed to maintain the scale, resilience and security of India’s digital payments network.
