The proposed 0.02% merchant discount rate (MDR) on UPI transactions in the capital markets is expected to have a limited impact on retail investors, but could raise costs for brokers depending on the frequency and size of fund transfers. The proposed rate is significantly lower than the 0.4% MDR for other UPI transactions and is capped at Rs 300 per transaction.
āThe 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,ā said Dhiraj Relli, MD & CEO, HDFC Securities.
Relli said SIPs routed through UPI AutoPay would remain outside the framework, while one-time transfers would cost investors only a few rupees in most cases.
Zerodha co-founder Nithin Kamath, however, flagged the potential cost burden on brokers, particularly when customers transfer funds without subsequently executing trades. He suggested an MDR of 0.02% with a lower cap of Rs 5-10 per transaction for broking transactions.
Illustrating the potential impact, Kamath said that if 10,000 customers each made 50 UPI transfers of Rs 2 lakh in a month without executing a single trade, the proposed MDR could cost a broker around Rs 2 crore without generating any corresponding revenue.
The impact could be compounded by Sebi rules requiring brokers to return unused client funds every month or quarter, Kamath said, adding another layer of costs for the industry.