The Pattern #134

How a rumour killed many a FinTech dreams

Mayank Jain

Head - Marketing and Content

·

Jun 13, 2025


Hi everyone,  

Welcome to the 158th edition of The Pattern, a weekly where we dive into the latest from the world of economy, technology and finance. Let’s get started!  

Proverbs 26:22: "The words of a gossip are like choice morsels; they go down to the inmost parts." 

This biblical quote talks about the perils of gossip and how it can lead to bitter consequences.  

That's exactly what happened when investors caught a whiff of the government bringing back MDR on UPI. According to reports, the Centre was reportedly deliberating on reintroducing the Merchant Discount Rate (MDR) for Unified Payments Interface (UPI) transactions exceeding ₹3,000.  A ray of hope for FinTech firms operating in this no-fee paradigm.  

"It will be business as usual since we have been operating without MDR for a few years now. But there was hope in the industry that MDR would be brought back at least for big-ticket transactions; now that is gone," —said the chief executive of a major payment processor in anonymity. 

It took less than a day for this rumour to turn radioactive. Whispers turned into headlines. Before anyone could see the new dawn of digital payments, an eclipse occurred. The Finance Ministry tweeted a hard stop: "Speculation and claims that the MDR will be charged on UPI transactions are completely false, baseless, and misleading. Such baseless and sensation-creating speculations cause needless uncertainty, fear, and suspicion among our citizens." 

So, there it was. One press release. One quote. Many dreams crushed! Paytm's stock plummeted by 10% . Investors lost faith amidst the tug-of-war over MDR. 

Paytm's plunge wasn't irrational—it was a reality check. Because the average user believes UPI is 'free'. What they don't see is the cost piling up with every swipe. A free lunch, after all, still needs someone to cook, serve, clean, and run the kitchen. 

The mirage of monetisation

Let's not forget—UPI isn't just a digital payments tool. It's a national treasure. India processed over 18.68 billion UPI transactions worth ₹25.14 lakh crore in May 2025 alone, averaging 602 million transactions per day. According to BCG projections, India's digital payments market is expected to reach $10 trillion by 2026. 

Before UPI became a part of our daily transactions, it emerged as a saviour during demonetisation. Remember those mile-long ATM and bank queues? Digital payment apps like Paytm swung into action and captured the market. As a result, Paytm saw a 435% surge in user traffic during that time. That's how much faith the population had in digital payments. 

Cut to FY25. The government allotted just ₹1,500 crore for UPI infrastructure. To a casual observers, that might sound generous until one realises the actual cost to run, maintainand upgrade UPI infrastructure is closer to ₹10,000 crore per year. Last year's support? ₹3,500 crore. 

It's a harsh reality for players that worked hard to build trust, convenience, and speed into a government-promoted infrastructure which is now the centrepiece of India’s digitisation story. And yet, their reward is shrinking subsidies. 

Cold catastrophe of COVID  

This wasn't the story before the COVID pandemic. Back in 2019, the National Payments Corporation of India (NPCI) lowered the MDR on RuPay debit cards for transactions above ₹2,000—from 0.9% (capped at ₹1,000) to 0.6% (capped at ₹150). UPI transactions also had similar charges before everything went south. 

It was sufficient to support payment processors in terms of infrastructure, engineering, and maintenance. Then, in January 2020, the government, in the name of rapid adoption, introduced a Zero MDR policy for UPI and RuPay transactions. 

By killing MDR, the government gave every kirana store and chaiwala no excuse to deny digital payments. It worked. UPI scaled like wildfire. This was an important step that was needed at that time to support small merchants—but that's the story of the past. 

FinTech in deep waters  

If we listen to FinTechs’ plea attentively, we will understand that they are just struggling to stay afloat. PhonePe, for instance, gets 95% of its revenue from digital payments and UPI is the core of it. It's preparing for an IPO later this year and unless a solid monetisation plan emerges, it could be stepping onto public markets with no clear answer to how it plans to generate profit from its most-used offering. Razorpay and Pine Labs are likely to be in similar boats. All roads lead through UPI. And all those roads currently end at a no-entry sign called Zero MDR. 

Pleading in progress  

That's why industry bodies like the Payments Council of India have been pleading—not demanding, pleading—for a balanced reintroduction of MDR. Just a simple ask: let large merchants, those who already pay MDR on cards, also pay a nominal 0.3% on high-value UPI transactions. Leave the small merchants untouched. Protect the backbone of Indian commerce. All this without punishing the platforms powering this entire system. 

Cracks in the foundation  

The irony? UPI is thriving in volumes. It contributed to 83.4% of India's total retail digital payments in FY25. Globally, India leads with a 48.5% share in real-time payments. That's a triumph by any means. 

But this success story is increasingly looking hollow. With every transaction, the cost of maintenance increases. With every subsidy cut, margins vanish.

And yet, new competitors are entering the market. Super.Money, Navi, Cred—all nudging their way into UPI's fortress using cashback and burn-heavy tactics. But without MDR, no one—not even the giants—can hold the fort for too long.  

The hope in hindsight   

In the middle of all this chaos, there's at least one quiet win: the Payments Regulatory Board (PRB) .  

Set up by the RBI, this new body is meant to untangle the challenges of FinTechs and build a better ecosystem. This new body separates the people running the payment systems from those regulating them. They plan to bring in outside experts, which could lead to fresh ideas, faster decision-making, and a more focused, specialised way to regulate the system. It's still early days, but its creation shows the RBI's willingness to set the house in order.  

Without a viable revenue model, FinTechs can't continue investing in cybersecurity, infrastructure, or even basic user onboarding.  

It's time to reduce the chaos and set things in order. Before another rumour becomes a wildfire.  

That's a wrap for this week—signing off now! I’ll see you again next week. As always, leaving you with a few reads to explore. Have a great weekend!

Reading List:  

  1. Banks back status quo on co-lending   

  2. Terror funding? Charitable entities under CBDT lens  

  3. In a first in 14 years, PSU banks beat private ones in loan growth  

  4. Steep rate cut set to provide NBFCs a healing touch  

  5. RBI’s surprise rate, CRR cuts may accelerate banks’ earnings recovery: Analysts  

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on X here and follow FinBox on LinkedIn to always get all updates. 

Cheers,

Mayank



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