Ashi Anand, CEO and Founder of IME Capital, indicated that a potential merchant discount rate (MDR) framework for UPI transactions could materially improve the earnings outlook for payment companies in India. Speaking to CNBC-TV18, Anand noted that the introduction of an MDR on UPI payments — which are currently free for merchants and consumers alike — would create a new revenue stream for payment processors and digital platforms that facilitate those transactions.

Anand also shared his broader investment preferences, saying he favors digital platform companies over traditional quick-commerce players. His comments touched on sectors including digital payments, food delivery, and quick commerce, with specific reference to companies such as Paytm, MobiKwik, and Pine Labs.

The debate around imposing MDR on UPI transactions has been ongoing in India's fintech policy circles. UPI, operated by the National Payments Corporation of India (NPCI), has grown into the country's dominant digital payment rail, processing over 10 billion transactions monthly as of 2023. The government abolished MDR on UPI transactions in January 2020 to accelerate digital adoption, effectively shifting the cost burden onto payment intermediaries. However, the absence of MDR — a fee that merchants typically pay to payment networks and issuing banks — has raised concerns about the sustainability of business models for payment companies that rely on transaction-based revenue.

Industry stakeholders, including major payment firms and industry associations, have previously urged regulators to consider an MDR structure for UPI, arguing that zero-MDR requirements place an unfair burden on payment intermediaries. The Reserve Bank of India (RBI) and the central government have periodically reviewed the issue, weighing the need to maintain UPI's low-cost appeal against the commercial viability of payment service providers. A viable MDR framework is seen as critical for sustaining innovation and infrastructure investment in the payments ecosystem, even as policymakers prioritize financial inclusion through low-cost digital rails.

Anand's remarks come at a time when listed payment companies in India are being closely watched by investors for signals on revenue diversification and profitability. Companies like Paytm, which went public in 2021, have faced scrutiny over their path to profitability amid constrained monetization options for core payment services. His preference for digital platforms over quick-commerce suggests a view that companies with established payment and financial services ecosystems may offer more attractive risk-reward profiles than the capital-intensive and highly competitive quick-commerce segment, where players such as Zomato-owned Blinkit, Swiggy Instamart, and Zepto are aggressively expanding with substantial cash burn.

Source: CNBC-TV18