The proposed 0.02 per cent merchant discount rate (MDR) on UPI transactions in the capital markets could create an unintended cost for stock brokers, as the charge may apply even when clients merely transfer their own money into their broking accounts and do not execute a trade.
Brokers said such transfers are essentially the movement of a client’s own funds and do not represent a commercial transaction that generates revenue for the broker.
“The fundamental issue is that there should be no MDR on a client transferring funds to their own broking account. This is merely a movement of their own money for the purpose of investing or trading and does not represent a commercial transaction by the broker,” said Ajay Kejriwal, Director at Choice Broking.
“Charging the broker 0.02 per cent on such transfers, including cases where the client ultimately does not execute a trade, creates a cost without any corresponding brokerage revenue,” he said.
‘No guarantee’
Zerodha Founder and CEO Nithin Kamath said there is no guarantee that the money transferred to a broker would result in a transaction, while brokers could not force clients to trade after transferring funds.
For instance, 10,000 customers making 50 UPI transfers of ₹2 lakh each in a month, without executing a single trade, could potentially result in a UPI cost of around ₹2 crore for the broker at the proposed MDR.
Clients routinely move funds into their trading accounts and more than half of the funds transferred back to broking accounts after quarterly settlements happen through UPI, potentially creating a recurring cost for brokers without generating additional revenue, he said.
The impact could be more pronounced for discount brokers, where brokerage on some transactions is already very low or nil. “As passing this charge to clients is not an option under the circular, and discount-broking brokerage can itself be lower than the MDR, absorption would directly impact margins and could adversely affect low-cost offerings,” Kejriwal said.
He said the ₹300 cap does not address the fundamental concern and that the government may need to clarify the treatment of transfers into a client’s own broking account.
Kamath said an MDR itself was not necessarily an issue, but suggested that a much lower cap of ₹5-10 per transaction would be more reasonable for broking.
Limited impact
For retail investors, however, HDFC Securities MD and CEO Dhiraj Relli said the impact should remain limited. The 0.02 per cent rate for capital-market transactions, capped at ₹300, was significantly lower than the standard MDR, while UPI-based SIP payments through AutoPay would fall outside the framework. One-time transfers, he said, would carry a cost of only a few rupees in most cases.