US companies to earn more from UPI fees?:How new charges may help Visa, Mastercard, and PhonePe’s IPO valuation

India’s plan to charge a 0.4% merchant fee on UPI transactions above ₹2,000 is raising questions about who will benefit. Trade experts say the fee could create a new revenue source for Walmart-owned PhonePe and boost its valuation ahead of a planned IPO. The move could also ease long-standing US concerns that India’s free digital payments system and RuPay network have put global card companies such as Visa and Mastercard at a disadvantage. The fee will be paid by eligible merchants, while consumers will continue to use UPI without a transaction charge. The move could particularly benefit PhonePe and Google Pay, which together account for more than 80% of UPI transactions, according to estimates cited by the Global Trade Research Initiative (GTRI). How does UPI MDR aid PhonePe’s valuation? For Walmart-owned PhonePe, the change comes ahead of a planned initial public offering (IPO) and could give investors a new way to value the company’s payments business. But the impact may extend beyond UPI operators. GTRI argues that the move could also improve the competitive position of international card networks such as Visa and Mastercard by reducing UPI’s cost advantage over card payments. Why Visa and Mastercard are part of the story The possible benefit for Visa and Mastercard is more indirect. UPI became popular partly because merchants could accept payments without the MDR normally associated with card transactions. Credit-card MDR can range from 1.5% to 2.5%, according to the figures cited in the source material, while debit-card MDR can be as high as 0.90%. The new UPI rate of 0.4% remains below those levels. But for eligible transactions, UPI will no longer have a zero merchant fee. GTRI argues that this changes the competitive equation for international card networks. The think tank says India’s zero-cost UPI system, together with RuPay’s position in the domestic payments market, has put international networks such as Visa and Mastercard at a disadvantage. In its view, charging MDR on selected UPI transactions could reduce one of UPI’s cost advantages over traditional card payments. This does not mean Visa or Mastercard will receive the 0.4% fee. Nor does the new rule give them direct access to UPI. The argument is instead about relative costs. If merchants have to pay something for larger UPI transactions, the gap between UPI and card payments becomes smaller, although UPI remains cheaper. GTRI questions who captures UPI’s value GTRI has also questioned whether Indian merchants and consumers should help create additional revenue for foreign-owned technology companies using India’s public digital payments infrastructure. The think tank points out that UPI was developed by Indian public institutions and banks, but PhonePe and Google Pay now process more than 80% of transactions based on the estimates it cites. GTRI argues that the government should instead consider a participation fee on foreign platforms using public infrastructure. It also says the policy could eventually allow fees to be extended to other categories of UPI or RuPay transactions, although that would require future policy decisions. Under the new rules, a 0.4% MDR will apply to specified merchant UPI transactions above ₹2,000. Transactions up to ₹2,000 will continue to carry zero MDR, while specified small merchants will remain exempt. Consumers will not pay the fee directly. Instead, the merchant bears the charge, which is then distributed among participants in the payments system. UPI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026, showing the scale of the network. Even a small fee on a portion of that activity could create a significant revenue pool. Industry and brokerage estimates cited in reports put the potential annual MDR pool at around ₹16,000 crore to ₹20,000 crore once the system is fully operational. Market share and ownership: Who dominates India’s UPI market? The size of the opportunity is closely linked to the dominance of two payment apps. PhonePe handles about 45% of UPI transactions, while Google Pay accounts for roughly 35% to 40%, according to estimates cited by GTRI and Indian fintech publication Inc42. Together, the two platforms account for more than 80% of UPI transactions by volume based on those estimates. PhonePe is about 70% owned by Walmart, while Google Pay is owned by Alphabet, Google’s U.S.-based parent company. The new MDR gives payment apps the possibility of earning from transactions that previously generated little or no merchant fee revenue. Payment apps will not necessarily keep the entire 0.4%. The MDR is shared among banks and other participants in the payment chain. Earlier industry estimates suggested third-party payment providers could receive about 30%, while issuing and acquiring banks could receive the rest. For PhonePe, however, even a portion of a large revenue pool could become financially meaningful because of its enormous transaction base. A stronger earnings outlook could also affect PhonePe’s valuation ahead of its IPO. Any increase in PhonePe’s valuation would, in turn, increase the value of Walmart’s roughly 70% holding. Government rejects US pressure claim Finance Minister Nirmala Sitharaman has rejected claims that US pressure influenced the decision. The government has said the new framework is aimed at creating a sustainable payments ecosystem and has stressed that the rules do not give international credit-card networks an advantage over RuPay on UPI. That distinction matters. The MDR change alters the pricing of selected UPI merchant transactions, but Visa and Mastercard still do not have direct access to UPI credit transactions. For now, the clearest change is that UPI is moving toward a selective fee-based model. Banks could gain a new source of revenue, payment apps could monetise their large transaction volumes, and Walmart could benefit if the change supports a higher PhonePe valuation. For Visa and Mastercard, the potential benefit is more competitive than financial: GTRI argues that ending zero MDR for some larger UPI payments could narrow UPI’s cost advantage over international card networks. Whether that translates into greater card usage will depend on how merchants respond to the new fee and how the MDR revenue is ultimately distributed across the payments ecosystem.