How New UPI MDR Could Impact Brokerage Cost Structures

The introduction of a Merchant Discount Rate on UPI person‑to‑merchant payments marks a pivotal shift in India's payment landscape. According to Nitin Kamath, Zerodha's CEO, the measure aims to break the dominance of the three leading UPI apps, which together process more than 95% of all UPI traffic.

For brokerage houses, however, the impact could be stark. Kamath explained that brokers receive customer funds via UPI without any guarantee that the money will be used for a trade. If the MDR is levied on each inbound transfer, firms could absorb costs amounting to millions of rupees each month, especially when many customers transfer money but do not execute trades.

He provided a concrete example: with 10,000 clients moving ₹2 lakh each through UPI in a month, the cumulative MDR charge could reach ₹2 crore for a broker. Adding to this pressure are quarterly settlement rules that compel firms to return unused balances to customers, often prompting the same funds to be transferred again, thereby incurring the fee a second time.

Kamath's analysis warns that while the MDR may promote healthier competition among UPI providers, an undifferentiated fee could impose a disproportionate burden on brokerage operations, potentially leading to higher costs for investors or reduced service margins.