Unified Payments Interface (UPI) has become the backbone of digital payments in India. From roadside tea stalls to large retail chains, consumers increasingly rely on UPI-based apps such as PhonePe and Paytm for everyday transactions. According to the Finance Ministry, UPI now accounts for nearly 57 percent of all digital payment transactions in the country.

A recent report by Bernstein shows that UPI contributes close to 90 percent of total cashless payment volumes and over 70 percent of transaction value. However, since most UPI payments carry zero merchant discount rate (MDR), a key question remains—where do these payment platforms earn their revenue from?

Zero MDR, Limited Earnings From P2P Transactions

UPI transactions have officially carried zero MDR since 2020, meaning merchants are not charged for accepting payments. Person-to-person (P2P) transfers form a large share of transaction volumes, but contribute less than 10 percent of total revenue for platforms. These transactions generate only a small inter-bank and app-level fee, typically around 0.30 to 0.40 basis points of the transaction value.

Despite this, the overall digital payments ecosystem has expanded rapidly. Cashless payments now account for nearly half of all consumer spending in India.

Net Revenue Pool Estimated at ₹15,000 Crore

Bernstein estimates that in FY25, payment platforms will generate a net revenue pool of around ₹15,000 crore from a gross revenue pool of approximately ₹2.5 lakh crore. The gross figure reflects total payment-related earnings before deducting technology, processing, and banking costs. Even without factoring in lending or financial product distribution, payments alone have reached a scale large enough to sustain these platforms.

Merchants Drive the Bulk of Revenue

While consumer transactions dominate in volume, merchants account for nearly 75 percent of total revenue. Platforms earn through value-added services offered to businesses, rather than basic UPI transfers.

Key Revenue Sources Fueling Growth

Several segments are contributing to rising earnings:

• Credit Card Processing: Credit card spending is growing at over 20 percent annually. Since credit card transactions attract higher fees than UPI debit payments, platforms earn more per transaction.

• Bill Payments: Transactions routed through the Bharat Bill Payment System crossed ₹10 trillion in FY25, marking an 80 percent year-on-year jump. Bill payments generate up to 8–10 basis points, significantly higher than basic UPI transfers.

• POS Machines and Soundboxes: Devices such as point-of-sale terminals and soundboxes provide steady rental income from merchants. In FY25, this segment generated nearly ₹2,000 crore in revenue.

Improving Margins and Credit-Led Growth

According to Bernstein, the average net payment margin across platforms stands at about 56 basis points of transaction value. Platforms with a higher share of merchant and credit-based payments can earn substantially higher margins, even with lower transaction volumes.

Credit-based payments currently make up around 20 percent of total cashless payment value and are expected to rise to at least 25 percent by FY30. Even a 5 percent increase in credit share could lift industry margins by nearly 0.7 basis points. UPI-linked RuPay credit cards are expanding rapidly and already account for a significant share of credit card transactions.

Credit Is the Real Profit Engine

Despite heavy investments of nearly ₹15,000 crore, revenue per user remains modest. Payment apps earn less than ₹300 per user annually, with profits below ₹150. In contrast, traditional players such as SBI Cards and Payment Services generate close to ₹2,000 in pre-tax profit per active card.

This highlights a clear trend: while UPI drives scale and user adoption, long-term profitability for payment platforms lies in credit products and merchant-focused services rather than free peer-to-peer payments.