Razorpay on India's Unified Payments Interface

India made moving money between banks almost free. Here is what still costs money, and how Razorpay built a business on it.

Thesis: The Unified Payments Interface (UPI) made moving money in India almost free, so Razorpay sells everything around the move: whose money it is, which order it pays, where it goes next, and who answers when it breaks.

Start from zero

Take a ₹2,499 order on a direct-to-consumer (D2C) website. For it to move over UPI, six things must be true.

Both sides have an address that is not an account number: a Virtual Payment Address (VPA), the UPI identifier (UPI ID) people share, such as name@bank, mapped to a real bank account.
Someone registers the payer and binds their phone: a Payment Service Provider (PSP) bank, directly or through a Third Party Application Provider (TPAP) such as PhonePe or Google Pay.
The payer’s own bank authenticates them. The shopper enters a UPI Personal Identification Number (PIN). Their bank, not the app, checks it and debits the account.
One switch connects every bank. The National Payments Corporation of India (NPCI) runs it: 741 live banks in July 2026, and 2,451 crore payments worth ₹29.9 lakh crore in August 2026. (A crore is 10 million; a lakh is 100,000.)
Banks settle with each other. NPCI nets positions and settles them through the banks’ accounts at the Reserve Bank of India (RBI), several times a day.
Someone pays for it. Since January 2020 the Merchant Discount Rate (MDR) on UPI has been zero, though the government estimates UPI costs about ₹20,000 crore a year to run. Subsidies covered part of it, and nobody could charge the merchant.

Two flows ask for money. In collect, the merchant sends a request to the shopper’s VPA, which the shopper approves. In intent, the merchant opens the shopper’s UPI app, or shows a Quick Response (QR) code, with payee, amount and reference filled in, and the shopper only enters the PIN. Collect invited fake requests, so NPCI ended person-to-person collect in October 2025, and Razorpay’s documentation says merchant collect was deprecated from 28 February 2026, with exemptions such as capital-market payments. Intent and QR are now the default.

UPI AutoPay handles recurring payments. The shopper approves a mandate once with the PIN; later debits up to ₹15,000 need no PIN (₹1 lakh for mutual funds, insurance and credit card bills). Each debit is notified at least 24 hours ahead, and the shopper can pause or revoke the mandate in the app.

The primitives

A switch that moves money does not know which customer paid, which order closed or where the money goes next. Razorpay sells those answers.

Payment Gateway. The merchant creates an Order, Checkout offers UPI intent, QR, cards, netbanking, wallets and instalments, and the server verifies a signed response. Turbo UPI completes the payment inside the merchant’s own app.
Smart Collect. Virtual accounts, one per customer: an account number and Indian Financial System Code (IFSC) for National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS) and Immediate Payment Service (IMPS) transfers, or a virtual UPI address. Each credit arrives matched to a customer, so the real product is reconciliation.
Route. Splits a payment across linked accounts, such as marketplace sellers, with deferred settlement and reversals.
Payment Links and Subscriptions. Get paid over WhatsApp with no website, or charge on a schedule over cards, UPI AutoPay and e-mandates.
RazorpayX. Current accounts with partner banks (Razorpay states that RazorpayX is not a bank) and payouts over NEFT, RTGS and IMPS.
Magic Checkout. One-click checkout that pre-fills details for what Razorpay says are more than 100 million users in its network, with risk scoring for cash on delivery (COD) orders.
In-store payments. The 2022 purchase of Ezetap took the stack to point of sale (POS) terminals in shops.

Under it all sits the licence. A payment aggregator holds merchants’ money in a bank escrow account and settles it onward, which needs RBI authorisation. Razorpay won final authorisation as an online payment aggregator (PA-O) in December 2023, after a year barred from onboarding new merchants, then cross-border (PA-CB) in December 2025 and physical, in-store (PA-P) in January 2026.

Follow one payment

The ₹2,499 order, paid by UPI intent on a phone:

The merchant’s server creates a Razorpay Order for 249,900 paise.
The shopper taps PhonePe, which opens with the merchant’s VPA, amount and order reference filled in.
The shopper enters the PIN. PhonePe, through its PSP bank, sends the request to NPCI.
NPCI asks the shopper’s bank to debit ₹2,499. The bank checks the PIN and the balance, then debits.
NPCI tells the beneficiary bank, which holds Razorpay’s escrow, to credit ₹2,499, and confirms to both sides.
Razorpay marks the payment captured and returns a signed payment identifier. The merchant verifies it and waits for the payment.captured webhook before shipping.
NPCI settles the two banks’ net positions in its next cycle.
Razorpay pays the merchant from escrow, typically the next working day, minus its fee and 18% Goods and Services Tax (GST) on that fee.

Note that ₹2,499 is just above ₹2,000. That line is about to matter.

Where the money is

Razorpay’s standard plan charges a 2% platform fee per successful payment on cards, netbanking, wallets and UPI. Its pricing page is candid: standard UPI carries zero MDR, yet the platform fee still applies, for the dashboard, reporting and infrastructure. International cards cost up to 3%, and merchants above ₹5 lakh a month can negotiate.

That answers the zero-MDR puzzle. Razorpay never earned on the rail. It earned on software, on instruments that still carry fees (cards, international, instalments), on add-ons such as Magic Checkout and instant settlements, on RazorpayX, and on business credit. In the year to March 2025 (FY25), revenue was ₹3,783 crore, up 65%, and gross profit ₹1,277 crore. Only a third survives as gross profit: most of each fee passes through to banks and networks. A ₹1,209 crore loss came mostly from one-time stock option costs and the tax on moving its parent company to India.

Now the rail is getting a price. A Department of Financial Services note dated 15 September 2026 set an MDR on person-to-merchant (P2M) UPI payments:

UPI payment	MDR paid by the merchant
Person-to-person (P2P), any amount	Zero
P2M up to ₹2,000	Zero
P2M above ₹2,000	0.4% (₹12 on ₹3,000)
P2M of ₹75,000 and above	Capped at ₹300
Railways, telecom, insurance, fuel and utilities, above ₹2,000	Flat ₹5
Mutual funds and stockbrokers	0.02%, capped at ₹300
Small merchants in the person-to-person-merchant (P2PM) category, up to ₹1 lakh a month by QR	Zero
AutoPay mandates	No prescribed MDR

More than 95% of P2M volume is ₹2,000 or less, and merchants may not pass the charge on. Due on 15 October 2026, it was deferred on 13 October by NPCI’s steering committee to “immediately post Diwali”, date to be notified. As reported, the 0.4% splits four ways: 0.16% to the shopper’s bank, 0.12% to the acquiring bank, 0.08% to the shopper’s UPI app and 0.04% to that app’s PSP bank. No published split gives the aggregator a fixed slice, so for Razorpay the MDR is mainly a cost to pass through and explain.

What is hard, and what I would build next

1. An MDR forecast before the meter starts. Few merchants know how much of their UPI volume sits above ₹2,000. I would replay each merchant’s last 90 days through the new table, show the bill before go-live, and give MDR its own line in every settlement file. A fee that arrives as a forecast builds trust; a surprise gets blamed on the gateway.

2. Mandate-first repeat purchases. AutoPay mandates carry no prescribed MDR and need no PIN up to ₹15,000. For things people reorder, such as supplements or pet food, a mandate taken at the first purchase makes the second a single tap, and cheaper for the merchant than a fresh payment above ₹2,000. It must earn trust with clear notices and an obvious pause button, and win on convenience first, since regulators can close a cost gap.

3. Reconciliation as the moat. When the rail is cheap, value moves to knowing what each credit means. One ledger that matches UPI payments, refunds, Route reversals and MDR deductions, closed every night, keeps a merchant from switching gateways over a few basis points.