Nithin Kamath, co‑founder of Zerodha, warned that the current UPI Merchant Discount Rate (MDR) could impose a ₹2 crore monthly cost on brokers who process 10,000 customers each making 50 UPI transfers of ₹2 lakh, yet no trade. He added that the proposed MDR structure may not suit investments and broking.
Kamath highlighted SEBI's quarterly settlement rule that forces brokers to return unused funds every month or quarter, a cycle that drives a large portion of those funds back into broking accounts via UPI. The rule means brokers could face MDR charges on money that never generates a trade, adding an un‑earned cost layer.
Zerodha currently offers free brokerage on equity delivery trades because its cost base is low, but Kamath said that a blanket MDR would undermine that model. He argued that merchants cannot force a trade after a fund transfer, so the cost would be borne by the broker without any revenue offset.
Kamath proposes a 0.02% MDR cap with a ₹5 or ₹10 per transaction ceiling. The cap is designed to keep brokerage costs manageable while still reflecting the payment‑gateway expense.
Regulators are likely to weigh the proposal as brokers grapple with new fee structures. Market watchers should monitor RBI’s next update on UPI fees and SEBI’s stance on broker‑settlement rules, as the outcome could reshape the competitive landscape of online broking.