UPI MDR Broker Costs
Zerodha CEO Warns New UPI MDR Charges Threaten Zero-Brokerage Business Models
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Kamath illustrated the potential exposure with a hypothetical example: 10,000 customers making 50 transfers of ₹2 lakh each in a month without placing a trade could cost a broker about ₹2 crore in MDR, without generating revenue.
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Kamath said more than half of the transfers made after brokers return unused client funds under quarterly-settlement rules occur through UPI, potentially forcing brokers to bear repeated costs when the money returns without producing additional revenue.
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Kamath warned that the additional cost could eventually affect Zerodha’s business model because the company currently offers equity-delivery trades without brokerage, with that policy supported by the existing economics.
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Kamath said brokers cannot pass the charge on to customers under the proposed arrangement, leaving potentially no practical limit on the costs a customer could impose through repeated transfers that generate no trading revenue.
India's banking regulator NPCI has introduced a 0.4% merchant discount rate on UPI transactions above ₹2,000, capping fees at ₹300 per transaction starting October 15, 2026. India Today reported the move sparked concern among stockbrokers, who argue the structure creates unmanageable costs for their business model without generating revenue from those transactions.
Zerodha co-founder Nithin Kamath warned the MDR could force brokers to abandon free equity trades and said the proposed structure doesn't work for broking because customers can transfer funds repeatedly without placing a single trade. Economic Times reported Kamath called for a broking-specific cap of ₹5 to ₹10 instead.
How UPI MDR Creates Hidden Costs for Brokers
Stock brokers face a unique problem under the new MDR rules. Inc42 reported that investment platforms like Zerodha and INDmoney flagged that customers can make repeated fund transfers without executing any trades. Under quarterly settlement rules, brokers must return unused client funds and redeposit them—often through UPI.
Kamath provided a stark example: 10,000 customers transferring ₹2 lakh fifty times in one month without trading could cost a broker about ₹2 crore in MDR fees alone. More than half of post-settlement fund transfers use UPI, potentially forcing brokers to absorb repeated costs without generating any trading revenue.
Free Equity Trades Could Disappear, Kamath Warns
Zerodha currently offers equity-delivery trades without charging brokerage, a policy that relies on existing market economics. Economic Times reported Kamath said this free model cannot survive if brokers must absorb unlimited MDR costs. Unlike peer-to-peer transfers, which remain free, merchant transactions above ₹2,000 trigger the new fee.
Kamath stressed that brokers cannot pass these charges to customers under the proposed rules, leaving no practical limit on costs a single customer could impose through repeated transfers. The lack of a viable workaround means brokers will eventually need to change their pricing structure or business model entirely.
Capital Markets Get Lower Rate, But Brokers Seek Relief
NPCI set a lower 0.02% MDR rate for capital-market transactions, also capped at ₹300. However, Inc42 reported that Zerodha and INDmoney say this reduced rate still doesn't solve the core problem—brokers need a separate cap between ₹5 and ₹10 designed specifically for their use case.
While Times of India reported that fintech shares like Paytm jumped over 7% on the MDR announcement, the market's reaction masks deeper concerns from the brokerage industry about sustainability and whether they can maintain competitive service levels under this fee structure.
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