Mid-sized and state-run banks are increasingly deploying their own QR-payment infrastructure to acquire small-business customers directly and gain greater control over merchant relationships, according to bank executives and industry analysts.
The push comes as banks face intense competition for deposits and look for new ways to build low-cost current and savings account (Casa) balances, bank executives said.
By owning the QR infrastructure used by merchants to accept UPI payments, banks gain direct access to transaction flows and the deposits that accompany them. Industry executives say falling deployment costs for QR-linked devices and sound boxes have also improved the economics of acquiring merchants directly.
Traditionally, much of the QR infrastructure underpinning UPI payments has been controlled by third-party application providers (TPAP) such as PhonePe, Paytm and Google Pay. Some banks, including YES Bank and RBL Bank, have long been active in the segment, while larger lenders such as HDFC Bank and ICICI Bank operate dedicated merchant platforms—SmartHub Vyapar and InstaBIZ, respectively. State Bank of India routes its payments business through subsidiary SBI Payments.
“We have our own SBI Payments which does the QR codes, which also helps us acquire current accounts. We use our own bank channels, primarily we don’t use third party channels,” chairman CS Setty had told Mint at the sidelines of the bank’s Q4FY26 earnings conference on 8 May.
Now, lenders including Punjab National Bank, Indian Bank, Karnataka Bank, IDBI Bank, IDFC First Bank and AU Small Finance Bank are expanding their own QR deployments to reduce reliance on intermediaries and gain direct access to merchant deposits.
The focus on merchant deposits comes as banks face growing competition for low-cost funding. Overall deposit growth stood at 11.5% in FY26, compared with 10.6% in the previous year, but lower than the five-year high of 13% in FY24, while growth in current accounts eased to 9.7% from 9.8%, according to data from the Reserve Bank of India. Savings account growth also moderated to 28.7% from 29.1% in FY25, and a high of 34.6% in FY22.
“Along with savings accounts, this time the bank’s focus is fully on current account mobilization with PoS, QR code, supply chain and cash management verticals. We are sure that this time with the traction happening in current accounts we will see good growth in the Casa portfolio,” Punjab National Bank managing director and chief executive officer Ashok Chandra had said in the bank’s Q4 earnings call.
“POS (QR or otherwise) has long been considered a strong way of acquiring float balances – particularly current account,” said Yashraj Erande, managing director and senior partner; global leader - fintech at BCG India.
UPI processed 24,162 crore transactions worth ₹314 trillion in FY26, underscoring the scale of the payments ecosystem banks are targeting. Merchant payments accounted for 63% of transaction volume and 29% of total value, with the vast majority of transactions in low-ticket categories.
Indian Bank offers a glimpse of the opportunity. The lender has been focusing on escrow accounts, trust and retention accounts (TRA) and collection accounts that generate float balances while creating opportunities for fee income and cross-selling, managing director and chief executive officer Binod Kumar said at a conference on 6 May.
“We have started going towards these smaller accounts, where we can enjoy salary and float.”
The bank opened 384,000 such accounts in FY26 and plans to increase that to around 1 million in the current financial year, Kumar said. The average balance in QR-related accounts is about ₹200,000. Besides retail shops, the bank is targeting hospitals, educational institutions and temples.
Industry executives say banks already receive deposits linked to merchant transactions routed through TPAP-backed QR networks. However, those balances generally accrue to the one or two banks partnered with the payment platform, with the economics shared between the bank and the TPAP. By deploying their own QR infrastructure, banks can retain the full value of those relationships.
The battle for merchant relationships
The economics of the business, however, extend beyond payments.
According to BCG India's Erande, profitability depends on a combination of lending, merchant penetration and the time required to recover the cost of point-of-sale infrastructure.
“The overall relationship value is higher in the next tier of merchants rather than very large or organized players. This growth is crucial,” he said, adding that new devices or sound boxes embedded with QR are cheaper and have allowed paybacks on these machines to be faster.
The challenge is convincing merchants to switch.
“The question is, is it worth it for the merchant to shift to bank QR codes? A lot of these payment platforms also ensure that the merchants can avail small ticket loans and other such services, which these banks will need to match,” said Anil Gupta, senior vice president and co-group head - financial sector ratings at ICRA.
Erande said merchants already face a cluttered payments landscape, with multiple QR codes and point-of-sale devices competing for space at checkout counters. To gain market share, banks will need to offer credit and other value-added services. Without them, he said, the business could remain loss-making.
There are also potential consequences for merchant borrowers. If merchants frequently switch QR providers, TPAPs may become less willing to extend loans in the absence of transaction data, Gupta said. Lending partners could also begin incorporating such behaviour into underwriting decisions, including whether a merchant stopped collecting QR-linked payments during the previous 24 to 36 months.
“Stickiness will come from what value you are adding, including incentives such as soundboxes or flexible repayment schedules. For larger merchants, banks also take over the other loans and obligations of the business and can offer them other banking services as well, which can be an incentive for these merchants to shift the QR codes,” he added.