Stockbrokers in India have made a representation to the Union government to express their concerns over a merchant discount rate being levied on Unified Payments Interface (UPI) transactions, Securities and Exchange Board of India (Sebi) chief Tuhin Kanta Pandey said at a press conference following the regulator’s board meeting on Thursday.
The merchant discount rate (MDR)—a fee charged to merchants on digital payments and distributed among banks and payment service providers—will apply to certain UPI transitions from 15 October, the National Payments Corporation of India (NPCI) announced on 15 September.
Under the framework, person-to-merchant (P2M) UPI transactions above ₹2,000 will incur a 0.4% fee. For transfers of ₹75,000 or more, the MDR is capped at ₹300 per transaction. This cap also applies to capital-market transactions involving securities, mutual funds, and brokers, which will attract a reduced MDR of 0.02%.
Distinct challenges
Pandey noted that capital markets face distinct challenges compared to standard merchants, adding that the regulator has already gathered feedback to evaluate potential regulatory solutions and ensure these concerns are effectively represented.
Mint reported on 16 September that the BSE Brokers’ Forum had submitted a representation asking Sebi to examine these concerns, which could significantly affect discount brokers operating on thin margins.
The upcoming rules present a challenge for stockbrokers accepting investor payments via UPI. Under Sebi mandates, all registered brokers must display and use valid UPI handles on their websites to ensure funds are transferred strictly to verified accounts. However, brokers worry that the MDR on merchant UPI transactions could exceed the brokerage fees earned from resulting trades.
Fund transfers into a trading account do not guarantee a trade. Clients often transfer cash and leave it uninvested, forcing brokers to absorb payment processing fees without collecting any brokerage income.
This financial burden is further heightened by Sebi’s quarterly settlement mandate, which requires brokers to return unutilized funds to clients periodically. When clients re-deposit these funds back into their trading accounts, it triggers another UPI transaction and incurs a fresh round of MDR charges.
