Public sector banks, refusing to be outdone by their privately owned peers, are increasingly getting into QR-code led merchant payments, finally breaching the citadel of fintechs such as BharatPe, PhonePe and Paytm.

Industry insiders told ET that over the past one year, private banks such as ICICI Bank, HDFC Bank and Axis Bank started showing interest in direct merchant acquisitions for QR code-based payments. Now, large government-backed lenders such as State Bank of India, Punjab National Bank, and Central Bank of India are finding the space attractive enough to commit resources and managerial bandwidth.

“Since UPI payments are settled via banks in the backend, they have visibility on volumes and growth in the space,” said Sameer Singh Jaini, founder of consulting firm The Digital Fifth. “Now, PSBs also want to deploy devices ranging from simple QR to sound boxes. This will help dramatically reduce the cost of having digital payment capability for these merchants and will also get them access to banks’ other products like credit.”

These lenders are not only trying to build servicing channels for these merchants, they are also looking to build merchant-focused applications, soundboxes and QR code-led acquisition strategies.

This is a major shift in business strategy for banks given they have historically focused on large organised merchants who need point of sales (POS) terminals, thereby letting fintechs occupy the small merchant ecosystem. But given the revenue opportunities in this space and the domination of UPI payments, banks want to get back lost territory.

Emailed queries to SBI, PNB and Central Bank did not elicit a response.

Players like Worldline are working with banks to offer the technology stack and back-end settlements, thereby enabling a full-stack payment service to these small merchants.

“Today, banks want direct ownership of the merchant relationship, better data visibility, and greater control over service experience. With improved technology stacks banks are now capable of managing end-to-end merchant journeys themselves, while continuing to partner with specialists for scale,” said Ramesh Narasimhan, chief executive officer, Worldline India.

Revenue streams

There are two major reasons why banks are showing interest in this space. One is the low cost of deploying payment solutions and second is the data and lending opportunities around this business.

Data from the Reserve Bank of India shows that there are around 728 million QR codes deployed in the country, compared to 11 million POS terminals. There is double counting in this QR code data given many merchants have QR codes from multiple fintechs. Industry estimates suggest around 30 million soundbox terminals are there in the country, which gives a realistic sense of the market.

Now players like Paytm, have publicly disclosed that they are doing around Rs 4,500 crore of quarterly disbursals for these merchants. Merchant payments have shown a major growth over UPI, largely driven by UPI QR code-based transactions. Data from NPCI shows Rs 8 lakh crore was paid through 13 billion transactions via UPI to merchants in December 2025. And 67% of the transactions were above Rs 2,000.

Paytm, a major player in this sector, said in its second quarter earnings that 13.7 million merchants have taken its device subscription. Rs 592 crore was generated by the firm in payment revenue in the September quarter. This number was Rs 465 crore a year back, showing the opportunity in this space.

Banks want a slice of this pie.

“Banks are focusing on making their payment platforms more relevant through features like instant onboarding and on-demand settlement. With an existing strong banking relationship, once the payment layer is solid, adding credit and related products becomes much easier,” said Raman Khanduja, cofounder of Mintoak which works with large banks helping them acquire merchants for UPI payments.

ET reported on December 26 that large non-banking lenders are opening up their purse strings to cater to these merchants’ credit requirements.

If NBFCs are making money through this business, banks feel they can offer better interest rates and take market share.

Crossing paths

An entry into the small merchant payment business might end up putting banks in loggerheads with fintechs as they vie for market share. However, industry insiders believe that might not be the case yet.

Estimates suggest that banks have less than 20% market share with fintechs dominating the sector. So while fintechs might build solutions for micro merchants, banks might content more with mid and larger merchants.

“Fintechs continue to dominate overall QR distribution due to early mover advantage and aggressive merchant acquisition. However, bank-led QR codes are steadily increasing and now account for a meaningful and growing share, particularly among mid-sized and large merchants,” Narasimhan of Worldline said.

While these are still early days, merchant payments on UPI itself are growing very fast. This indicates there is enough space for multiple players to exist and gives enough headroom for banks to grow their business steadily

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