UPI needs sustainable revenue model for growth: PhonePe CEO on MDR debate

At Business Standard BFSI Insight Summit, PhonePe's Sameer Nigam says MDR is necessary for UPI's growth, while questioning criticism of foreign investors who helped build India's payments ecosystem

PhonePe founder and Chief Executive Officer Sameer Nigam on Tuesday defended the introduction of a merchant discount rate (MDR) on select Unified Payments Interface (UPI) transactions, arguing that India's digital payments ecosystem needs a sustainable revenue model to support continued investment, innovation and growth.

 

Speaking at the Business Standard BFSI Insight Summit in Mumbai, Nigam said the rising costs of operating payment infrastructure, including cybersecurity, fraud prevention and regulatory compliance, made it increasingly difficult for companies to continue investing without generating revenue directly from payments.

 

"You can't have a vibrant payments market with no money in payments," Nigam said during a fireside chat with Business Standard's AK Bhattacharya.

 

 

Under the framework announced by National Payments Corporation of India (NPCI) in September, MDR of 0.4 per cent will apply to specified person-to-merchant transactions above ₹2,000, subject to a cap of ₹300 per transaction. The government has clarified that person-to-person transfers will remain free, while approximately 96 per cent of merchant transactions will be exempt from the levy.

 

However, the NPCI deferred the implementation of MDR, which was scheduled to take effect on October 15, until after Diwali. A fresh implementation date is yet to be notified.

 

Rising costs make MDR necessary: Nigam

 

Nigam said the absence of direct payment revenue had made it difficult for companies to sustain investments in the UPI ecosystem, particularly as operational and security requirements continued to increase.

 

"The sector stopped growing because no one's able to continuously invest in a system that, at scale, is just costing a lot more than ever," he said.

 

He pointed to rising expenditure on cybersecurity, know-your-customer (KYC) processes, fraud prevention and emerging risks associated with new technologies.

 

Foreign capital criticism misplaced: Nigam

 

Nigam also questioned the criticism surrounding foreign ownership in India's digital payments industry, arguing that companies had invested substantial capital in developing UPI infrastructure in response to the government's efforts to attract private investment.

 

PhonePe, with US-based Walmart as its controlling promoter, spent approximately $1.7–1.8 billion over the past decade, absorbing losses while building its payments business, said Nigam.

 

"We are such talented people, but we have this weird relationship with foreign capital, and we need to get over it," he said. "Either we want FDI and FII and FPI capital, or we don't. If they come in because we invite them, we can't turn around when businesses finally start making money and say, 'I don't like you making money.' That's kind of weird. It's not a charity."

 

Nigam also rejected reports that the proposed MDR would primarily benefit foreign-owned payment companies, pointing out that the ecosystem included several domestic players.

 

On PhonePe's market share cap and competition

 

Nigam also addressed concerns about PhonePe's dominant position in the UPI ecosystem, arguing that the underlying UPI infrastructure remained open.

 

"Clearly, my presence is not deterring people from coming in, and my market share is not deterring people from investing," he said. According to the latest NPCI data, PhonePe accounts for over 45 per cent of UPI transaction volume and about 47 per cent of UPI transaction value.

 

For Nigam, the absence of direct monetisation opportunities, rather than the dominance of established players alone, is among the factors affecting competition.