SEBI to Review UPI MDR Framework Following Broker Outcry Over Hidden Costs, Says Chairman
Summarized by AI; it may make mistakes. Check important info
Summarized by AI; it may make mistakes. Check important info
The Securities and Exchange Board of India (SEBI) will examine industry apprehensions regarding the proposed Merchant Discount Rate framework (MDR) for Unified Payments Interface transactions (UPI), according to Chairman Tuhin Kanta Pandey. Speaking on the sidelines of an infrastructure conclave in Mumbai, Pandey acknowledged that key operational hurdles had been brought to light by market intermediaries.
The Broking Industry Dilemma
Broking houses have flagged significant financial exposure stemming from the updated digital payment rules.
On Wednesday, Zerodha CEO Nithin Kamath backed the new UPI framework on person to merchant UPI payments, saying it was probably required as the digital payment system gained widespread adoption.
However, Kamath has also flagged the issue and noted that brokers could incur UPI charges even when customers transfer money into their accounts but do not execute trades.
Kamath has suggested that a lower transaction cap should be considered for broking-related UPI payments.
Zerodha chief executive Nithin Kamath pointed out that while widespread adoption justifies the payment architecture overall, investment platforms face a unique structural mismatch. Intermediaries absorb processing costs when clients transfer capital into trading accounts without subsequently executing market orders.
The financial strain multiplies due to existing regulatory mandates governing capital management. Zerodha highlighted that SEBI requires brokers to periodically return unutilised client funds back to their source accounts under quarterly settlement rules. Consequently, firms face a recurring loop of transaction expenses without retaining the capital long enough to generate matching brokerage revenue.
Path Forward for Market Participants
Industry leaders are lobbying for a revised transaction ceiling tailored specifically to investment and stockbroking use cases. Whether the regulator adjusts the pricing tiers or carves out specific exemptions for capital market deposits will determine the financial impact on digital-first trading platforms across the country.
