UPI Fee Shift Sends Indian Payment Stocks Higher

Paytm, Axis Bank, Yes Bank among early gainers as analysts see new revenue opportunities Shares of major Indian digital-payment and banking companies rose in early trading after the introduction of a new fee framework for transactions on the Unified Payments Interface (UPI) raised expectations of fresh revenue opportunities across the payments ecosystem. Paytm, Axis Bank and Yes Bank gained between 2% and 8% in early trade, while fintech companies Pine Labs and One Mobikwik rose about 2.2% and 6.5%, respectively, before giving up those gains. Pine Labs later traded 3.2% lower, while One Mobikwik was down about 1%. Brokerages described the development as “structurally positive”, although they cautioned that the financial impact on individual companies would depend on factors including transaction mix, exemptions and how fees are ultimately distributed among banks, payment applications and aggregators. Citi estimated that the new framework could create an annual revenue pool of between 160 billion rupees and 170 billion rupees. Of that amount, banks could receive about 60%, while app providers and aggregators could receive 25% and 15%, respectively. The brokerage identified Yes Bank as the standout potential beneficiary among banks, followed by Bank of Baroda, Punjab National Bank and IndusInd Bank. Bank of Baroda gained about 1%, while Punjab National Bank rose 1.5%. IndusInd Bank, however, surrendered its early gains and was trading marginally lower during the session. The changes come amid a long-running debate over the sustainability of India's rapidly expanding digital-payments ecosystem. Industry executives have argued that the absence of charges on many UPI transactions has constrained the ability of payment companies and other participants to generate revenue from the infrastructure supporting the system. By comparison, credit-card transactions in India generally attract fees of about 1.5%, while debit-card transactions can carry fees of up to 0.9%. These charges are commonly referred to as the merchant discount rate, or MDR. Analysts at JPMorgan said the latest framework represented a significant change in the economics of India's digital-payment system. “The framework marks a shift away from the zero-MDR regime and establishes a transaction-linked revenue model ... with the aim of strengthening the long term sustainability of UPI,” the analysts said. Fintechs in focus The anticipated revenue impact has also lifted expectations for India's fintech companies, particularly Paytm and Pine Labs. Goldman Sachs expects the new framework could provide between 40% and 70% upside to its fiscal 2028 estimate for Paytm's earnings before interest, taxes, depreciation and amortisation (EBITDA) under a “high-end” scenario. Jefferies raised its target price for Paytm to 2,150 rupees and its target for Pine Labs to 235 rupees. Emkay also increased its targets for the two companies to 2,400 rupees and 230 rupees, respectively. The projections reflect expectations that transaction-linked revenue could create a new income stream for companies operating across India's digital-payments ecosystem, although the eventual benefit will depend on the structure and implementation of the fee system. Exemptions retained The National Payments Corporation of India (NPCI), which operates UPI, has retained zero MDR for small merchants and person-to-person transfers. Fees have also been capped for essential services and capital-market transactions, limiting the scope of charges across some categories of UPI transactions. The exemptions mean that the revenue opportunity will not apply uniformly across the entire UPI network. Analysts have therefore stressed that the ultimate earnings impact will vary from one company to another depending on the types and volumes of transactions they process. The development nevertheless marks an important shift in the commercial framework surrounding India's UPI ecosystem, potentially giving banks, fintech companies and payment aggregators a new source of transaction-linked revenue while maintaining exemptions for selected users and services.