India's new fee for using its home-grown digital payments network could create a 270 billion rupee ($2.8 billion) annual revenue pool by fiscal 2028, with banks likely to capture the biggest share of the profits, according to research firm Bernstein.
State Bank of India is expected to benefit most among issuing banks, while Axis Bank Ltd. and Yes Bank Ltd. stand out because of their large roles as payment-service providers, Bernstein analysts including Pranav Gundlapalle said in a note.
The Merchant Discount Rate — a fee businesses pay to banks and other providers for processing transactions — will apply to payments routed through India's Unified Payments Interface. Bernstein estimates it could generate nearly 200 billion rupees in profit for the payments ecosystem, with banks retaining about 60%, or 120 billion rupees.
“Put differently, the industry could be earning an additional Kotak Mahindra Bank Ltd. worth of profits every year and a profit pool that is likely to grow at about 20% for next several years,” the analysts wrote.
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Businesses will have to pay as much as 0.4% on UPI transactions above 2,000 rupees from Oct. 15, capped at 300 rupees for transfers of 75,000 rupees or more.
The fee will apply to most UPI merchant payments by value. Transactions above 2,000 rupees accounted for 67% of money consumers paid to merchants in August, despite making up just 4% of transaction volume, data from operator National Payments Corporation of India showed.
The fee could boost banking-system profits by about 3%, though the benefits are likely to be “highly uneven,” Bernstein said. SBI could capture about 25% of an estimated 80 billion-rupee issuer pool, helped by its large share of savings accounts.
Axis and Yes Bank, meanwhile, have much larger roles in processing UPI payments relative to their traditional banking market shares. Actual gains could differ depending on their mix of merchant and person-to-person transactions and how fees are ultimately shared with large payment platforms, according to the note.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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