The Merchant Discount Rate (MDR) on UPI payments could become a financial bonanza for Paytm. The fintech firm could earn up to Rs 700 crore in a full financial year, said CFO Madhur Deora on the September quarter (Q2 FY27) analysts’ call.

Paytm expects UPI MDR to uplift its payments processing margin by at least 2.5 basis points (bps). Based on its current Gross Merchandise Value (GMV) of Rs 28 lakh crore, this would translate to roughly Rs 700 crore in incremental EBITDA and may reach Rs 900 crore by FY28.

“On our GMV, which is Rs 28 lakh crore at current scale, 2.5 bps would give you something slightly more than Rs 700 crore,” Deora said.

The National Payments Corporation of India (NPCI) has notified a 0.4% MDR on Person-to-Merchant UPI payments for transactions above Rs 2,000. The framework is set to be implemented immediately after Diwali (December 8).

1. UPI MDR gains exclude platform fees

Paytm founder and CEO Vijay Shekhar Sharma said MDR is a “bottom line-accretive number” because it is “not factored in absolutely, completely” in the company’s business model.

The fintech firm currently earns MDR from credit cards on UPI and Paytm Postpaid.

Sharma also said that the potential 2.5 basis points improvement in payments processing excludes possible platform fees. “The bps that we’ve quoted does not factor in any potential additional revenue if any platform side fees could have been added.”

“The MDR on UPI is an upside to our business model. It is not fundamental to our business model… the bigger monetisation and the payback period comes from financial services,” said Deora.

2. Paytm targets one-third of UPI market share

Paytm is looking to capture a one-third share of UPI’s consumer payments market.

“We are going to go all-in on market share, and we call it as a primary KPI for my team. Our target is to take one-third market share in this business. There is nothing less than that we will settle for,” said Sharma.

Paytm currently accounts for 8.1% of UPI transaction volumes, lagging behind PhonePe’s 45.6% share and Google Pay’s 32.2%, according to NPCI data for September.

The customer acquisition will be product-led rather than cashback-funded. “I do not want to do it based on only marketing spend, if you will, or cash back burn. I want to do it on product and features,” said Paytm’s CEO.

On NPCI’s proposed 40% cap on a single player’s UPI share, he said, “We are the receivers… We are trying to optimise for this situation.”

3. Business model pivot in consumer lending

Paytm has shifted its consumer lending business model towards an asset-light, partner-led distribution model.

“We switched our business model completely towards distribution without requiring any upside of or any First Loss Default Guarantee (FLDG) to be given in consumer business,” Sharma said.

Instead of lending from its own balance sheet, Paytm relies on partner banks and NBFCs. The company is not looking at the mix between DLG and FLDG and is rather prioritising the availability of capital.

We don’t look at the mix. We look at the more availability of capital, more availability of lenders, and we want to have more number of people. I always say this, that, if there is a new lender coming in or if there is a lender there who wants to give us more capital because they want to take DLG, please take it.

It is a revenue accretive because we get more revenue, and it is a profitability accretive because they open up more number of and more account of merchants and the dollar value or the rupee value that they disperse — Sharma.

4. Paytm Postpaid eyes Rs 9,000 cr in quarterly disbursals in 1-2 years

On Paytm Postpaid, the company’s credit-line-on-UPI product, an analyst asked the management whether it can reach its previous high of Rs 9,000 crore in quarterly disbursals and 10 million customers.

The management said it expects to reach that scale in the next 1-2 years and remains bullish on Paytm Postpaid as customers already know the product.

“Incidentally, it is an EBITDA positive business by itself. So it is a contribution margin positive business for us. We already make MDR-based revenue, credit card on UPI credit line, which is Paytm Postpaid,” said Sharma.

The company relaunched Paytm Postpaid in September last year. It had wound down this offering earlier due to stricter RBI regulations on unsecured consumer lending and a broader decline in asset quality across the fintech industry.

5. Paytm unveils AI platform for small merchants

In its earnings release, Paytm announced that it has begun offering its AI platform to enterprise merchants. On the analysts’ call, Sharma clarified that the platform will cater to small merchants. The name of the platform was not disclosed.

“Yes, it is for small businesses. For large businesses, we have something more brewing up. Hopefully, we announce it after some time. But right now, we are focused on creating agents for small businesses,” said Paytm’s CEO.

Paytm’s merchant-facing AI platform will monetise through “subscription plus transaction fee, one of the or two of the both will be applicable”, according to Sharma.

“We have started acquiring customers where we have put the platform fee. We are working with Meta and Google, actually rather Meta, where we are helping a platform fee monthly, and then we get some percentage of spend also,” he said.

The company expects its new AI offering to bring in meaningful revenue after “at least two, three quarters more… Maybe, by same quarter next year.” It will be reported under “marketing services”, one of Paytm’s revenue line items.

Sharma insisted that AI is paying for itself. “Every dollar that we spent on AI has more number of dollars made than ever. We are not renting intelligence from outside. We make our own models,” he said.

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