Under the new framework, effective October 15, eligible UPI person-to-merchant (P2M) transactions above ₹2,000 will attract an MDR of up to 0.4%, capped at ₹300. The charge will be borne by the merchant, while customers will continue to use UPI without a transaction fee.
The new framework marks a shift from UPI’s earlier zero-MDR model for merchant payments and is expected to create an annual revenue pool of around ₹16,000-17,000 crore, according to estimates cited in the YES Bank note.
YES Bank seen as key beneficiary
Banks are expected to be among the biggest beneficiaries of the new MDR framework, with YES Bank standing out because of its UPI backend infrastructure, according to Citi.The bank provides the underlying UPI infrastructure for multiple digital payment platforms, allowing it to participate in transactions routed through UPI rails.
Citi estimates that the new MDR revenue opportunity could have a 5%-10% impact on YES Bank’s pre-provision operating profit (PPOP) and a 6%-12% impact on profit before tax (PBT).
What changes under the new UPI framework?
The MDR will apply only to a defined set of merchant transactions. Person-to-person (P2P) payments will remain free, while standard P2M transactions of up to ₹2,000 will continue to attract zero MDR.
Small merchants receiving up to ₹1 lakh a month will also have mandatory zero MDR, while certain categories will have concessional rates.
Telecom, insurance and fuel transactions above ₹2,000 will attract a flat ₹5 MDR. Payments to mutual funds and stock brokers will carry an MDR of 0.02%, subject to the ₹300 cap.
The MDR collected on eligible transactions will be distributed among participants in the payment ecosystem, including banks and payment service providers involved in processing the transaction.
The framework therefore creates a potential revenue stream for participants that have historically processed UPI merchant payments without a conventional MDR.
The actual financial impact will depend on transaction volumes, the mix of eligible payments and how MDR revenue is distributed across the ecosystem once the framework takes effect on October 15.
Shares of Yes Bank gained as much as 4.5% on Wednesday but have pared most of those gains to trade 1.1% higher at ₹23.33. The stock has gained 9% so far this year.
