MDR or no MDR: that is the big question for India’s payments apps and the UPI frontrunners — PhonePe, Google Pay and Paytm — or even the likes of CRED, Groww, Flipkart’s Super.Money, Navi and others which are looking to build their own UPI empires.

Earlier this month, speculation emerged that the Indian government is close to bringing in a merchant discount rate (MDR) regime or a commission structure on UPI transactions for these players, especially for high-value payments. This built up enthusiasm for the future of Paytm and MobiKwik.

However, on June 11, the Finance Ministry firmly denied these reports, calling them “false, baseless, and misleading,” and reiterated its commitment to promoting digital payments without imposing MDR charges.

This official clarification triggered a sharp drop for Paytm and MobiKwik on the bourses, with the former seeing the biggest impact.

In fact, Paytm’s big push in the past few quarters on consumer payments has been built around the premise of MDR coming into play. A large part of the future narrative for both Paytm and MobiKwik have been set around MDR.

This does impact the likes of Navi, PhonePe and others that are looking to join the IPO rush. While Groww is also eyeing a listing, its primary focus is not on UPI. However, our analysis of the UPI players includes Groww, because it represents an outlier in the group with a very high ticket size — more on this later.

MDR Future For UPI Apps

The stock market crash for Paytm and MobiKwik epitomises the overall investor sentiment for the fintech and payments sector as hopes for MDR-related earnings were dashed. Without MDR, the payments app will continue to process a high volume of UPI transactions at no charge, making profitability elusive — or the UPI paradox, as we called it two years ago.

The problem persists. Paytm, MobiKwik, CRED, PhonePe and the likes remain reliant on other business lines like lending, insurance, and merchant services. In Paytm’s case, in Q4 FY25, the company’s payment services revenue fell 33% year-on-year, while financial services grew 79%.

Paytm stock’s steep drop this week was its worst single-day performance since........

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