MDR reset: Flat ₹5 UPI fee on the table for capital-market transactions

Proposal needs Sebi representation, followed by RBI, govt nod

A flat fee of about ₹5 could replace the 0.02 per cent merchant discount rate (MDR), capped at about ₹300, for capital-market transactions conducted through UPI, after stockbrokers raised concerns over the existing cap, according to people familiar with the matter.

 

The proposed change is likely to require a formal representation from the Securities and Exchange Board of India (Sebi), followed by approvals from the Reserve Bank of India (RBI) and the government, before it can be notified by the National Payments Corporation of India (NPCI).

 

The move would bring capital-market transactions in line with categories such as insurance, education, bill payments, government payments, fuel and agriculture, where UPI transactions follow a flat fee.

 

“Stockbrokers’ ask is that UPI transactions for capital markets should attract a flat fee of ₹5. Once a formal representation comes through from Sebi, the flat fee can be notified, provided it receives approval from the RBI and the government as well. It is similar to the fee structure for insurance transactions through UPI,” said a person familiar with the matter.

 

An MDR is the fee a merchant pays its bank or payment service provider for accepting digital payments.

 

Emails sent to Sebi and NPCI seeking their comments did not elicit a response until press time.

 

On Thursday, Sebi Chairperson Tuhin Kanta Pandey said the regulator would look into concerns raised by stockbrokers over the new MDR for large fund transfers through UPI. The MDR for capital-market transactions has been set at 0.02 per cent, subject to a ₹300 cap, for payments to mutual funds, brokers and dealers, and investment advisers. It is due to take effect on October 15. 

 

Recurring standing instructions and UPI mandates, including those used for mutual fund systematic investment plans, will not attract MDR charges.

 

On a cumulative basis, the industry would have had to pay about ₹125 crore a year under the new framework, according to sources. “Most stockbrokers in India have a healthy business model and could have been able to afford these costs,” the person quoted above said.

 

The scale of the transactions is significant. In August, 84.12 million UPI transactions worth ₹63,667.21 crore were recorded in the securities brokers and dealers category, according to data.

 

After the MDR framework was announced, broker associations wrote to Sebi raising concerns and entered discussions with the regulator over the resulting increase in operating costs. Brokers have argued that the charge would create a recurring expense running into crores of rupees without necessarily generating additional trades or revenue.

 

“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 per cent with a cap of ₹5 or ₹10 per transaction seems much more reasonable for broking, instead of a cap as high as ₹300,” Nithin Kamath, founder of discount brokerage Zerodha, wrote in a social media post.

 

The brokers’ concerns stem in part from Sebi rules requiring them to periodically return unused client funds, known as client float, to customers. The regulator introduced the requirement to reduce the risk of brokers misusing client funds.

 

A flat-fee model would therefore address the cost of such transfers without tying the charge to the value of funds moved, which can be substantially higher than the value of any subsequent transaction.

 

The debate over UPI MDR has also spread to other industries in recent days.

 

Senior officials from the Ministry of Petroleum and Natural Gas met the All India Petroleum Dealers Association on Thursday to discuss the dealers’ demand for an exemption from MDR on UPI transactions.

 

The All India Consumer Products Distributors Federation has also raised concerns about fees on select UPI transactions, warning that additional charges could put further pressure on small traders, retailers and distributors already operating on thin margins. 

The case for a rethink 

• Announced rate: 0.02% MDR, capped at ₹300, on capital-market UPI transactions from October 15
• Industry impact: MDR could cost brokers ₹125 crore annually
• UPI scale: August saw 84.12 million transactions worth ₹63,667 crore in the securities-broker category
• Brokers’ concern: MDR adds costs on client-fund transfers that may not generate trades or revenue
• Flat-fee categories: Insurance, education, fuel, agriculture and bill payments have a flat ₹5 MDR fee