India’s fintech landscape has scaled at break‑neck speed with UPI now processing ~20–21 billion transactions a month and daily volumes in the ~640–700 million range. This ubiquity, driven by QR code merchant acceptance and low-cost digital rails, has transformed how value is created and monetised in payments. For Transfer Pricing (TP), this means profits are no longer explained by tangible assets alone but by risk engines, KYC / AML controls, data pipelines, switching platforms and user‑side network effects.
At the same time, OECD TP guidance (2022) consolidates BEPS Actions 8–10 (intangibles, profit split, HTVI) and financial transaction rules, sharpening how DEMPE and risk control determine returns for unique intangibles and integrated platforms. For India‑centric fintech groups, RBI’s KYC Master Direction (updated repeatedly through 2024–25) and Payment Aggregator rules define critical regulated functions whose performance and control have TP consequences.
Multiple value drivers coexist in tightly integrated stacks:
These features create unique and valuable intangibles with cross‑border DEMPE contributions and few clean external comparables pushing taxpayers and authorities toward profit‑split or contribution‑based approaches rather than one‑sided cost‑plus alone. OECD guidance recognises such settings highly integrated operations, unique intangibles, multi‑party contributions as classic use cases for transactional profit split and HTVI safeguards.
Under OECD Chapter VI, these are unique intangibles; the associated returns should follow DEMPE, who develops, enhances, maintains, protects and exploits and who controls risks and has the financial capacity to bear them.
On the compliance side, the RBI KYC Master Direction (2016, updated through 2024–25) codifies CDD, ongoing due diligence, sanctions screening, V‑CIP and central KYC usage functions that, if performed in India with decision‑making authority, indicate substantive contributions that may warrant non‑routine returns relative to mere routine processing.
Payment Processing, Switching & Aggregation
Data Use & Monetisation
Digital Lending & BNPL
Cross‑Border Gateways & Remittances
India has argued that local users and merchants create location‑specific value (network effects, behavioural data, advertiser / merchant attraction). Historically, India used Equalisation Levy (6% on digital ads; 2% on e‑commerce supply) and SEP thresholds (₹20 million revenue or 300,000 users) to defend market jurisdiction rights in the context that influences TP audits on market‑side returns, even as DST‑like measures are expected to be rationalised under Pillar One once implemented. (Note: CBDT indicates scope changes and sunset interactions over time.)
For fintech models monetising local P2M scale (e.g., UPI), this translates into uplift expectations for Indian market entities where they drive user / merchant acquisition, perform KYC / AML or iterate fraud/credit models using Indian datasets.
1) Strengthen DEMPE Analysis (Algorithms & Data)
Document who builds and updates models, who sets acceptance/risk thresholds, where training / inference occurs and who approves releases. Map data lineage and access rights under DPDPA; align these with economic ownership of the algorithms. Use change logs and model cards as TP evidence.
2) Robust Inter‑company Agreements (ICAs)
Explicitly address data usage rights, model training rights, algorithm ownership, updates, service‑level and compliance obligations (e.g., KYC/V‑CIP) and shared platform cost allocations compliant with RBI norms. For risk/control functions, embed decision rights and indemnities.
3) Method Selection: Don’t Default to Cost‑Plus
4) Benchmarking Playbook (Payments & Services)
Where market references are needed (e.g., processing/aggregation fees, risk services, KYC utilities), build narrow, function‑matched searches; consider specialty datasets for service fees and triangulate with TNMM as a cross‑check. Maintain India‑specific filters where location savings or regulatory burdens are material.
5) Location Savings & Market Premium
India‑based capability hubs may deliver location savings; document if and how these are already competed away (e.g., salary arbitrage captured by market rates) before layering any uplift. Conversely, for market premium (UPI‑driven P2M scale), articulate a facts‑based rationale for market entities’ shares when they perform on‑the‑ground DEMPE (acquisition, compliance, risk tuning).
6) Align with Pillar One Trajectory
Track Pillar One’s Amount and MLC status and its interplay with India’s legacy DST/EL measures. Where in scope, expect destination‑based reallocation to markets and plan for corresponding TP policy adjustments to avoid mismatches.
7) Documentation: What Indian TP Files Should Show
Fintech and digital payments businesses in India sit at the intersection of regulated compliance, unique platform intangibles and market‑side network effects. The 2022 OECD TP Guidelines and India’s RBI / DPDPA regimes together imply that returns should follow real substance—who designs and controls risk engines, who governs data and compliance, and who builds and exploits the user/merchant base.
A hybrid TP architecture usually works best:
With disciplined DEMPE documentation, purpose‑built ICAs and evidence‑rich benchmarking, fintech MNEs can minimise disputes and align profit attribution to how value is truly created in India’s real‑time payment economy.