Paytm: UPI MDR Expected to Boost Payment Processing Margin by About 2.5 Basis Points
In its Q2 FY27 earnings report, Paytm expects that after NPCI sets a 0.4% MDR cap on P2M UPI transactions above Rs 2,000, its overall payment processing margin will increase by about 2.5 basis points; that margin is currently above 4 basis points. NPCI plans to implement the framework after Diwali, with an MDR cap of Rs 300 on transactions above Rs 75,000, while P2P UPI remains exempt. Paytm's net profit for the quarter reached Rs 22.5 billion, up more than 10 times year-on-year, with revenue rising 28% to Rs 264.8 billion.
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“Based on the proposed cap of 0.4% MDR on select payments (non-industry merchants) for payments above Rs 2,000, and based on our current Gross Merchandise Value mix, we expect an indicative uplift of approximately 2.5 basis points in overall Payments Processing Margin,” Paytm said in its Q2 FY27 earnings release.
The fintech firm said its payments processing margin is already sitting comfortably above 4 basis points, helped by growth in MDR-bearing instruments such as UPI credit cards and Paytm Postpaid.
The company expects the upward trend to continue and stabilise in 2-3 quarters post-implementation of the MDR on UPI framework.
Paytm further explained this by saying:
“Our business model is to acquire customers through payments and monetise through financial services and technology services. We do not depend on UPI MDR for profitable growth. Any MDR on UPI would be an upside, not its foundation”.
Earlier last month, the National Payments Corporation of India (NPCI) notified a Merchant Discount Rate (MDR) of 0.4% on person-to-merchant UPI transactions above Rs 2,000. For transactions above Rs 75,000, MDR is capped at Rs 300. Person-to-Person UPI transactions will continue to remain exempt from MDR.
The UPI MDR framework is set to be implemented after Diwali, NPCI said, despite growing calls from payment industry bodies and merchants to either delay it until January 2027 or entirely call off the rollout.
Paytm’s Q2 financial snapshot
One97 Communications, the parent company of Paytm, posted a more than 10-fold jump in consolidated net profit to Rs 225 crore for the quarter ended September 30, 2026, helped by continued growth in its payment business, merchant subscriptions and financial services distribution.
The company had posted a net profit of Rs 21 crore in the corresponding quarter last year.
Sequentially, profit rose 2% from Rs 220 crore in the June quarter.
Revenue from operations increased 28% to Rs 2,648 crore in the July-September quarter, compared with Rs crore a year ago. Total income rose to Rs 2,830 crore, while total expenses stood at Rs 2,531 crore.
The fintech firm attributed the strong performance to higher payment transaction volume and value, growing merchant subscriptions led by its Soundbox devices, and higher revenue from the distribution of financial services such as personal and merchant loans.
Alongside the earnings, Paytm also announced that it has begun offering its AI platform to enterprise merchants. The company said its in-house AI products will help merchants grow their business and win more customers across channels, including the main Paytm app.
However, it did not disclose the name of its enterprise AI service, nor who its early adopters are. Reports suggested earlier that Paytm was looking to sell AI agents to banks, lenders, insurers and other financial institutions in India and the UAE.
Additionally, Paytm’s board approved an investment of Rs 500 crore in Paytm Cloud Technologies and another Rs 500 crore in its Singapore subsidiary.
Financial services distribution business gathers pace
Paytm added 2.3 lakh key financial services customers year-on-year in Q2 FY27, taking the total tally to 8.8 lakh.
Key financial services customers are unique consumers and merchants who have availed Paytm’s and group entity’s financial services offerings including equity broking, insurance and credit products, such as merchant and consumer loans.
Revenue from distribution of financial services soared 49% YoY to Rs 912 crore.
Paytm claimed more than 50% of merchant loans distributed through its platform went to repeat borrowers. As the lendable base expands, Paytm is launching new loan products across merchant segments such as higher-ticket loans for merchants using electronic data capture (EDC) machines.
The fintech firm said it is leveraging AI to generate higher engagement and sharper insights on merchant behaviour, which is enabling it to scale merchant loan distribution.
Nonetheless, merchant payments remain Paytm’s key growth driver. The company saw a 26% YoY jump in merchant GMV to Rs 7.1 lakh crore, while subscription-paying merchants grew by 27 lakh YoY to 1.64 crore.
“High merchant retention and engagement, and subsequent loan distribution are resulting in higher revenue per merchant,” Paytm said.
Net payment revenue, excluding Payments Infrastructure Development Fund (PIDF) incentive, stood at Rs 644 crore. During Q2 FY27, Paytm received PIDF incentive of Rs 12 crore.
Consumer UPI payments is also making healthy gains. Paytm added 1 crore monthly transacting users in Q2 FY27, highest in three years. The company said its UPI gross transaction value rose 42% during the September quarter versus industry growth of 19%.
Paytm Postpaid, its credit line on UPI product, saw higher sign-ups, higher spends per customer, improved portfolio performance and better profitability. The company expects this product to contribute meaningfully to its revenue and EBITDA from FY28 onwards.
Paytm also reported improved monetisation in Margin Trade Funding (MTF) and Paytm Gold, with AI-powered offerings expected to drive future growth.
Overall, revenue from payments services grew 25% YoY to Rs 1,434 crore, while marketing services revenue climbed 26% to Rs 287 crore, primarily due to growth in advertising revenue.
Where did Paytm spend in Q2?
Operating revenue grew at a faster clip that expenses. Paytm’s total spending rose 23% YoY to Rs 2,531 crore.
Payment processing charges: This remained the largest cost centre for Paytm. Expenses under this head rose 28% to Rs 805 crore in the September quarter of FY27 from Rs 629 crore in the year-ago period.
Software, cloud and data centre: The company’s spending in this bracket surged 59% to Rs 211 crore, compared to Rs 133 crore in Q2 FY26.
Key operational metrics (Q2 FY27)
Registered merchants: 5.2 crore
Subscription merchants: 1.64 crore
Gross Merchandise Value: Rs 7.1 lakh crore
Merchant transactions: 1,785 crore
Total transactions: 2,156 crore
Average monthly transacting users: 8.5 crore
Also read:
Paytm rolls out enterprise AI service in pivot beyond payments
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