India's Unified Payments Interface (UPI) recorded a marginal 1.8% decline in transaction volume in September, falling to 24.07 billion from August's record 24.51 billion, coinciding with the upcoming introduction of a new merchant discount rate (MDR) framework starting October 15.
- UPI transactions fell 1.8% to 24.07 billion in September from August's record volume.
- New UPI MDR charges starting October 15 target P2M transactions above ₹2,000.
- PhonePe plans IPO revival post-MDR clarity, targeting 2027 listing with $10B valuation.
What happened
In September, UPI transactions in India declined by nearly 1.8% month-over-month, totaling 24.07 billion transactions compared to 24.51 billion in August. The transaction value also saw a slight drop of 1.5% to ₹29.37 lakh crore from the previous month’s ₹29.82 lakh crore. Despite these monthly declines, the year-over-year growth remained robust, with transaction volumes up 23% and value rising 18%. The daily average transactions increased to 802 million, while the daily transaction value also grew slightly.
This moderation in volume came amid intense discussions about the new UPI merchant discount rate (MDR) framework issued by the Indian government. This framework, set to be implemented from October 15, imposes a 0.4% MDR on person-to-merchant transactions above ₹2,000, capped at ₹300 for transactions of ₹75,000 and above. Person-to-person payments will continue to be free of MDR charges.
Why it matters
The introduction of MDR charges over high-value merchant transactions represents a pivotal shift in the UPI ecosystem. While person-to-person payments remain free, the new MDR is expected to provide a revenue stream for banks and payment processors that have long sought monetization avenues. The fee structure allows acquiring banks to charge merchants, who pay an MDR that is partially distributed between issuing banks and digital payment app providers, thus formalizing commissions within the UPI framework.
However, this change has raised concerns among merchant groups and retailers who fear that the new charges could discourage UPI acceptance during critical periods like the festive season when transaction sizes typically increase. This friction was highlighted by a threatened 'No UPI Day' protest, which was later called off after government engagement addressed some concerns. The resolution of this tension will be critical for maintaining UPI’s widespread merchant adoption.
What to watch next
Industry stakeholders are closely watching how the MDR implementation impacts UPI transaction patterns, especially in the merchant payments segment. The initial months following October 15 will reveal whether merchants shift away from UPI in response to the new fees, potentially affecting overall transaction volumes and values. UPI apps, banks, and payment companies will need to adapt strategies to mitigate merchant pushback and capitalize on possible new revenue streams.
A notable development to observe is the planned IPO of PhonePe, India’s leading UPI merchant payments player which controls roughly 45% market share in that segment. Post clarity on the MDR regime, PhonePe aims to revive its IPO plans targeting a public listing between February and March 2027, seeking a valuation of around $10 billion. This move underscores how payment firms are recalibrating their business models amid regulatory changes.