One 97 Communications Ltd's (Paytm) stock has gained nearly 3% since 15 September when the National Payments Corporation of India (NPCI) announced a new merchant discount rate (MDR) framework for UPI transactions. Investors celebrated the move from a largely subsidy-based model towards a contractual and scalable revenue model.
Effective 15 October, a 0.4% MDR will apply to eligible person-to-merchant (P2M) UPI transactions above ₹2,000, subject to a ₹300 cap, and concessional rates for specified sectors. But the eventual benefits accruing to Paytm will depend on how MDR is distributed, and how the eligible UPI pool shrinks with concessions and caps.
The headline 0.4% is not Paytm’s revenue, as the MDR has to be shared across the ecosystem, including the issuing and acquiring banks. The NPCI has not yet specified the final distribution. JM Financial Institutional Securities assumes a 20% allocation to Paytm, translating into an 8-basis-point (bps) share of the MDR, while Emkay Global Financial Services has pencilled in a 10-bps passthrough.
JM and Emkay haven’t said if they considered the merchant or consumer side of benefits to Paytm, or both. Bernstein, which explicitly includes the merchant and consumer sides’ shares of Paytm, estimates that Paytm can command 18-bps take rates.
P2M UPI transactions above ₹2,000 account for only 4% of transaction volumes, but they account for 67% by value. But the eligible UPI pool is expected to be much smaller. Here’s why. Specified sectors including railways, telecom, insurance, fuel, and agricultural inputs will be eligible to pay a flat ₹5 per transaction. These sectors form 46% of the UPI P2M transaction value. Capital market transactions also attract concessional rates, and small merchants are exempt.
Accounting for these concessional rates, the eligible P2M UPI pool is expected to be much smaller than 67%. JM Financial expects it at 20%, and Emkay at 35%.
Together, these two assumptions—passthrough MDR rate for Paytm and eligible UPI pool—can massively impact the actual benefits accruing to Paytm. Emkay, with its more optimistic assumptions, expects ₹1,120 crore in incremental MDR revenue in FY28 for Paytm, while JM’s calculations show just ₹473 crore.
Accounting for the loss of UPI incentive, JM expects ₹443 crore in net incremental MDR revenue, 100% of which is assumed to flow through into Ebitda (earnings before interest, taxes, depreciation, and amortization). Paytm clocked ₹2,448 crore in operating revenue during the June quarter (Q1FY27), of which ₹1,384 crore came from payment services. Aided by a 31% year-on-year growth in merchant gross merchandise value (GMV) to ₹7.1 trillion last quarter, revenue grew 28%, and Ebitda margin expanded from 1% to 8%.
MDR rates are comfortably below credit card economics, which carry 1.5-2.5% rates, according to JM Financial. This limits the possibility of high-ticket transactions being migrated to cards. But competition is a big risk. While Paytm has gained market-share from 5.6% in Q1FY26 to 6.7% in Q1FY27, it is still far behind PhonePe’s 49.4% and Google Pay’s 33.7%.
In a bid to capture a bigger share of the large-ticket flow, Paytm may be forced to pass some of their MDR share back to large merchants through discounts. For now, investors have no reason to crib, with the stock having gained 37% so far in 2026. It trades at around 35x FY28 estimated enterprise value/Ebitda, per JM. The passthrough rate, shaped by competitive dynamics, and the size of the eligible UPI pool will drive investor sentiment from here.