The upcoming Merchant Discount Rate (MDR) on UPI transactions proposed by the National Payments Corporation of India may unexpectedly burden stockbrokers by imposing fees on fund transfers even when no trades are executed, according to Zerodha co-founder Nithin Kamath.
- Proposed UPI MDR set at 0.4% capped at ₹300 per transaction from October 15, 2026
- Zerodha warns costs may escalate when customers transfer funds without trading
- Calls for lower MDR rate and cap specific to brokerage sector
What happened
The National Payments Corporation of India (NPCI) announced a revised MDR framework for UPI merchant transactions, effective October 15, 2026. Transactions above ₹2,000 will incur a 0.4% MDR capped at ₹300, while consumer UPI transactions will remain free. This move introduces charges on fund transfers classified as commercial activity through UPI.
Nithin Kamath, co-founder of Zerodha, responded by highlighting concerns about how this framework affects brokerage firms. Kamath pointed out that fund transfers to broker accounts can be frequent and do not always result in actual trades, yet each transfer could attract significant MDR charges under the new system.
Why it matters
For brokers, the inability to pass on the MDR charge to customers could lead to escalating costs. Kamath illustrated that if thousands of customers repeatedly transfer funds without trading, the collective charges could reach crores in rupees, negatively impacting brokerage business economics.
Additionally, regulations requiring quarterly settlement of unused client funds exacerbate this challenge. Customers often move funds back and forth from their broking accounts via UPI, causing brokers to incur repeated MDR fees, with no corresponding revenue generated from trades, putting further financial pressure on brokers.
What to watch next
Industry stakeholders and regulators may need to revisit the MDR structure for UPI transactions in the broking sector to ensure it reflects transaction realities and minimizes undue cost burdens. There could be discussions around introducing differentiated MDR caps and lower rates specifically applicable to brokerage fund transfers.
How RBI and NPCI respond to these concerns will be critical. Brokers like Zerodha might seek regulatory or policy interventions that enable sustainable UPI usage without degrading service economics, particularly for brokers offering commission-free equity delivery trades where absorbing extra costs could become untenable.