Zerodha Co-Founder, Nithin Kamath has raised concerns over the proposed UPI MDR structure for the broking industry and stated that brokers could incur costs on customer fund transfers even when no trades are executed. However, the Finance Ministry has stated, “the new framework ensures resources from higher-value merchant transactions are reinvested to support small businesses and strengthen digital payments across the country.”
In a post on X, Nithin Kamath said, “I think MDR on UPI was probably inevitable at some point, especially given how widespread UPI adoption has become. It could also lead to more competition, instead of just three apps accounting for more than 95% of the market.
That being said, there are some use cases, like investing and broking, where the proposed MDR structure doesn’t really make sense.
The problem with broking is that there is no guarantee that money transferred to a broker will actually result in a transaction.
As brokers, we can’t force a customer to trade after transferring money. And if we can’t pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue.
Just as an example, 10,000 customers could each make 50 UPI transfers of Rs 2 lakh in a month without executing a single trade. At the proposed MDR, this could potentially cost the broker around Rs 2 crore, without generating any business.
What makes this even more challenging is quarterly settlement (QS). This is a SEBI regulation that requires brokers to send unused funds back to clients every month or quarter.
Most customers then transfer these funds back to their broking accounts, with more than half of these transfers happening through UPI. So regulation essentially forces this movement of money every month or quarter, and the broker could end up bearing the cost when the money comes back, without any incremental benefit or revenue.
By the way, we currently don’t charge brokerage on equity delivery trades because the economics allow us to offer them for free. But if every UPI transfer starts carrying an additional cost, irrespective of whether the customer actually trades, I don’t see how we can absorb this indefinitely.
I think having an MDR is okay. It still doesn’t solve the problem of customers transferring money without transacting, but something like 0.02% with a cap of Rs 5 or Rs 10 per transaction seems much more reasonable for broking, instead of a cap as high as Rs 300.”
However, Dhiraj Relli, MD & CEO, HDFC Securities said, “the headlines around the new UPI charge have understandably focused on the 0.4% MDR, but what deserves equal attention is the decision to carve out capital market transactions into their own category at just 0.02%, capped at Rs. 300. That’s roughly a twentieth of the standard rate, and it isn’t incidental. UPI has become the backbone of retail investing in India and it settles IPO applications, funds SIPs, and brings first-time investors from smaller towns into formal markets faster than any rail we have had before. A blanket charge across all UPI use cases would have quietly taxed that progress. This calibrated approach tells us the intent was never to burden the retail investor, but to build a sustainable funding model for UPI’s infrastructure without pricing ordinary Indians out of investing. For stock broking clients in my view, the practical impact is minimal. SIPs set up through UPI AutoPay fall outside this framework entirely, and one-time transfers will carry a cost of a few rupees at most, never more than Rs 300. We have always believed the health of India’s capital markets depends on keeping the cost of participation low, and we are glad to see that reflected in how this policy has been designed. As an industry, we should read this not as a new cost, but as a considered decision to protect retail access to markets.”
