The Securities and Exchange Board of India (Sebi) will look into concerns raised by stockbrokers over the merchant discount rate (MDR) on UPI transactions, chairman Tuhin Kanta Pandey said on Thursday, signalling a possible review of an additional cost that could affect the economics of digital fund transfers in the securities market.
“I think there are some important issues there. We will certainly look into it and see how we can ease them,” Pandey said on the sidelines of the National Bank for Financing Infrastructure and Development (NaBFID) – Infrastructure Conclave 2026 on Thursday.
The chairman’s comments come after the National Payments Council of India (NPCI) on Tuesday introduced a charge on payments above certain thresholds.
MDR is a fee charged to the merchant on certain digital payment transactions, with the money distributed among participants in the payments ecosystem, including payment service providers and banks. The framework, which will be implemented from 15 October, mandates a 0.4% fee on person-to-merchant (P2M) above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction. This includes capital-market transactions, involving mutual funds, securities and brokers, which will attract an MDR of 0.02%. These, too, are capped at ₹300.
Challenge for brokers
The rules pose a challenge for stockbrokers who accept payments from investors using UPI. According to Sebi rules, all registered brokers must use valid UPI handles and display them on their websites, as part of measures to ensure investors transfer money only to verified accounts. Brokers, however, are concerned that the MDR applicable to merchant UPI transactions could be more than the brokerage revenue generated from the associated trades.
A transfer of funds into a trading account does not necessarily result in a trade. A client may transfer money and leave it unused, which means that the broker will incur a payment-related cost without earning brokerage revenue.
The potential impact becomes larger because of Sebi’s quarterly settlement rules, under which brokers must periodically return unused client funds to their customers. Clients may then transfer the money back into their trading accounts, creating another UPI transaction.
that the BSE Broker’s Forum has sent a representation to the Sebi to look into these concerns, which could have a large impact on discount brokers, who usually operate on thin margins.