The National Payments Corporation of India (NPCI) has introduced a 0.4% fee on UPI merchant transactions exceeding ₹2,000, effective October 15, 2026. This ends the long-standing zero-fee model and has led brokerages to upgrade Paytm and Pine Labs, betting on a new income stream. Investors remain watchful of how this fee is shared with partner banks and how it impacts long-term profitability.
The landscape for digital payments in India has shifted significantly after the National Payments Corporation of India (NPCI) announced a new Merchant Discount Rate (MDR) for UPI transactions. Starting October 15, 2026, merchants will pay a 0.4% fee on UPI payments exceeding ₹2,000. This move effectively ends years of zero-charge UPI transactions for larger payments, creating a potential new revenue source for major payment service providers.
Following the announcement, several brokerages including Emkay Global, Jefferies, and JM Financial revised their outlooks for Paytm and Pine Labs. Analysts see this policy change as a long-awaited catalyst that could improve profitability for companies in the payments space, as they can now earn a commission on a larger portion of their transaction volume.
Paytm and Pine Labs Stock Reactions
The market reaction to the news was varied. Paytm saw a positive surge in early trading on September 16, 2026, with the stock climbing to a 52-week high of ₹1,856.50. However, the stock pared some of these gains as the day progressed. In contrast, Pine Labs experienced notable volatility and a decline in its share price, suggesting that investors may be processing the news differently for each company.
Brokerages have been aggressive in their updated targets. For instance, Emkay Global raised the target price for Paytm to ₹2,400 and for Pine Labs to ₹230, citing the expected earnings boost from the new fee structure. Analysts at these firms believe that even a small percentage of fees retained from these transactions could significantly improve the EBITDA margins for both companies by fiscal year 2028.
Revenue Sharing and Execution Risks
While the introduction of fees is positive on paper, investors must carefully watch the revenue-sharing mechanism. The 0.4% fee is not entirely pocketed by the payment app or the infrastructure provider. A significant portion of this fee is typically distributed among the banks that issue the payment instruments and the acquiring partners. If the revenue sharing is heavily tilted toward banks, the net gain for Paytm and Pine Labs could be lower than market expectations.
Furthermore, there is a risk of merchant resistance. While the fee is relatively small and applies only to transactions above ₹2,000, any change to a previously free model requires careful execution. If merchants perceive the cost as too high, they might push customers toward smaller transaction sizes to avoid the fee, or favor other payment methods. The actual financial benefit will heavily depend on how effectively these companies can maintain their merchant base and negotiate their take rates in a competitive environment.
The next major phase for investors to track is the implementation on October 15, 2026. Market participants will be looking for concrete data on transaction volumes eligible for this fee, the actual revenue collected, and management commentary on how much of that revenue flows directly to the bottom line.