Shares of Paytm, formally known as One 97 Communications, experienced a significant slump on Thursday, June 12, 2025, after the Indian Finance Ministry refuted reports concerning the potential imposition of transaction fees on Unified Payments Interface (UPI) transactions. The stock witnessed its steepest intraday fall since February 2024, dropping as much as 10% before slightly recovering to trade down around 8%.

The Ministry of Finance issued a firm denial regarding the rumors, dismissing them as "completely false, baseless, and misleading." This clarification followed multiple media reports suggesting that the government was considering introducing a Merchant Discount Rate (MDR) on UPI transactions exceeding ₹3,000 to bolster the financial viability of banks and payment service providers. The ministry emphasized its continued commitment to promoting digital payments through UPI, stating that such misinformation generates "needless uncertainty, fear, and suspicion" among the public.

The sharp decline in Paytm's stock price reflects investor concerns regarding the monetization potential of UPI transactions. MDR is a fee levied on merchants by banks for processing payments. In a bid to encourage digital adoption, the government had waived MDR charges on UPI and RuPay cards.

The Payments Council of India (PCI) had previously appealed to Prime Minister Narendra Modi to reintroduce MDR on UPI and RuPay debit card transactions. The PCI proposed a 0.3% MDR on UPI payments for large merchants and a nominal MDR on RuPay debit card transactions for all merchants. While the government has been considering the proposal, the recent statement from the Finance Ministry indicates that there are currently no plans to implement these charges.

UBS, a brokerage firm, noted that the delay or non-introduction of MDR is "sentiment negative for Paytm." They added that the company's adjusted core profits could decline by over 10% in fiscal years 2026 and 2027 if increased incentives are absent. Paytm, a prominent player in the UPI ecosystem, has previously emphasized that policy clarity on MDR is crucial to its payments profitability roadmap.

The absence of MDR continues to pose a profitability challenge for fintech companies. While the introduction of MDR could enhance revenue for these firms, its absence remains a concern. The government's firm stance has put a near-term brake on expectations for MDR implementation.

Despite the market's reaction, UPI continues to experience substantial growth. In May 2025, the platform processed 18.68 billion transactions, amounting to ₹25.14 lakh crore. This represents a 33% increase in volume compared to the same month last year. The daily average for May was 602 million transactions, totaling ₹81,106 crore.

Paytm faces stiff competition in the UPI market from other major players such as PhonePe and Google Pay, which collectively hold a significant share. While Paytm offers seamless support for various Indian banks and does not charge any fees for UPI transactions, the uncertainty surrounding MDR and increasing competition contribute to investor apprehension.