Zerodha CEO and co-founder Nithin Kamath has raised concerns over the proposed UPI Merchant Discount Rate (MDR) structure and its potential impact on stockbrokers.
The issue matters for brokers because customers often transfer money into their trading accounts without placing a trade. In such cases, brokers could end up paying UPI-related charges without earning any corresponding brokerage revenue.
Under the new UPI framework, certain merchant transactions above ₹2,000 will attract MDR from October 15, 2026. While the standard rate for eligible transactions is 0.4%, payments related to capital markets and stockbrokers have been proposed at a lower rate of 0.02%, with the charge capped at ₹300 per transaction.
Why UPI Charges Could Become a Concern for Brokers
Kamath explained that the business model of stockbroking makes fund transfers different from many other merchant payments.
A customer may transfer money to a brokerage account with the intention of investing or trading but may ultimately decide not to execute any transaction. The broker, however, still has to process the fund transfer.
To illustrate the potential impact, Kamath gave an example of 10,000 customers making 50 UPI transfers of ₹2 lakh each in a month without executing a single trade. At the proposed rate, he estimated that the resulting cost could reach around ₹2 crore for the broker.
This becomes particularly significant because brokers cannot require customers to trade after transferring funds into their accounts.
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.
— Nithin Kamath (@Nithin0dha) September 16, 2026
That being said, there are some use cases, like…
Quarterly Settlement Adds Another Layer
Kamath also highlighted the impact of SEBI's client-fund settlement requirements.
Under the settlement mechanism, unused client funds have to be periodically returned to customers. Customers may then transfer those funds back into their brokerage accounts when they are ready to invest or trade.
According to Kamath, more than half of these transfers are made through UPI. This can create a recurring cost for brokers, even though the movement of money itself may not generate any additional trading revenue.
In his view, the current structure could therefore result in brokers bearing costs for transactions that do not ultimately lead to a trade.
Nithin Kamath Suggests ₹5-₹10 Cap
Kamath said he does not necessarily oppose the introduction of MDR on UPI. However, he suggested that the charges for broking-related payments should reflect the nature of the industry.
He proposed a 0.02% MDR with a much lower cap of ₹5 or ₹10 per transaction, instead of a cap of ₹300.
Such a structure, according to his proposal, would reduce the impact of repeated fund transfers on brokers while still allowing payment-related charges to be recovered.
Could UPI Costs Affect Brokerage Charges?
Another concern is whether brokers will eventually pass these additional costs on to customers.
Kamath noted that brokers may absorb the costs initially, but continuing to do so indefinitely could become difficult if customers frequently transfer funds without carrying out trades.
Zerodha currently offers zero brokerage on equity delivery trades. Kamath indicated that if UPI-related costs become significant regardless of whether a customer actually trades, maintaining such pricing models could become more challenging.
The actual impact will depend on how the UPI MDR framework operates after its implementation and how brokers and customers respond to the additional payment costs.
Key Takeaway
The proposed UPI MDR framework has opened a new discussion for the broking industry. While UPI continues to facilitate quick movement of investment funds, brokers are now examining how repeated customer fund transfers could affect their operating costs.
Kamath's comments highlight a specific industry concern: a fund transfer does not always result in a trade or revenue for the broker, but it could still create a payment-processing cost.
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