New Delhi

The proposed Merchant Discount Rate (MDR) on UPI transactions could create significant costs for stockbrokers even when customers do not execute trades, Zerodha co-founder Nithin Kamath said, calling for a lower transaction charge with a smaller cap for the broking industry.

Kamath said he supported the introduction of MDR on UPI but argued that the proposed structure does not account for the way customers use UPI to transfer funds to broking accounts.

“I think having an MDR is okay. It still doesn’t solve the problem of customers transferring money without transacting, but something like 0.02% with a cap of ₹5 or ₹10 per transaction seems much more reasonable for broking, instead of a cap as high as ₹300,” Kamath said in a post on X.

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.

That being said, there are some use cases, like…

— Nithin Kamath (@Nithin0dha) September 16, 2026

Under the revised framework announced by the National Payments Corporation of India (NPCI), UPI merchant transactions above Rs 2,000 will attract an MDR of 0.4 per cent, capped at Rs 300 per transaction from October 15, 2026. Consumers will continue to use UPI free of cost.

Kamath said the proposed structure could be particularly challenging for brokers because there is no guarantee that a fund transfer to a broker will result in a trade.

“As brokers, we can’t force a customer to trade after transferring money. And if we can’t pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue,” he said.

He illustrated the potential impact by saying 10,000 customers could each make 50 UPI transfers of Rs 2 lakh in a month without executing a single trade. At the proposed MDR, this could potentially cost a broker around Rs 2 crore without generating any business, he said.

Kamath also flagged the impact of quarterly settlement requirements, under which brokers have to return unused client funds. He said many customers subsequently transfer the funds back to their broking accounts, with more than half of such transfers taking place through UPI.

“So regulation essentially forces this movement of money every month or quarter, and the broker could end up bearing the cost when the money comes back, without any incremental benefit or revenue,” he said.

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Kamath said Zerodha currently does not charge brokerage on equity delivery trades because its economics allow the service to be offered free. However, he said absorbing an additional UPI cost on every transfer, irrespective of whether a customer trades, may not be sustainable indefinitely.