Brokerage firms have requested that SEBI limit the proposed Merchant Discount Rate (MDR) for UPI-based stock transactions to 2 basis points. The industry warns that the current proposal could increase costs for investors, as a large majority of capital market payments via UPI are lump-sum transfers that exceed the proposed ₹2,000 exemption limit.
The Securities and Exchange Board of India (SEBI) is currently evaluating a proposal from brokerage firms to revise the planned Merchant Discount Rate (MDR) structure for UPI transactions in the capital market. The industry has formally requested that the MDR be capped at 2 basis points, accompanied by an absolute transaction fee limit of ₹2 to ₹5 per trade.
The industry concern centers on how the proposed MDR structure will impact daily retail trading. According to brokerage data, approximately 95% of retail capital market payments are now processed through UPI. Industry estimates indicate that nearly 80% of these payments are lump-sum transfers, and roughly 70% of these UPI transactions are for amounts greater than ₹2,000.
Under the existing proposals, the MDR-free threshold is set at ₹2,000. Brokers argue that this limit does not align with the reality of typical investment sizes, potentially exposing most user transactions to fees. To mitigate this, the industry has suggested raising the exemption threshold to ₹20,000 to better accommodate the size of standard retail investment payments.
There is also significant debate regarding the proposed ₹300 transaction fee cap. Brokers contend that this cap is effectively irrelevant for capital market payments. At a 2% MDR, the ₹300 cap would only trigger at transaction values of ₹15 lakh. However, the standard UPI transaction limit is ₹5 lakh, meaning the cap would rarely apply to the bulk of retail trades, leaving investors exposed to higher percentage-based costs.
Additionally, brokerage firms have highlighted the issue of running-account payouts, which are the periodic transfers where brokers return unused client funds to their bank accounts. The industry maintains that these transfers should be entirely exempt from the MDR framework. Brokers argue that they do not earn revenue from returning customer balances, and imposing a fee on such transfers would create an unnecessary operational cost burden.
These proposals currently represent industry recommendations rather than a finalized regulatory decision. The ultimate impact on individual investors—specifically whether these payment costs will be absorbed by brokerages or passed on as additional charges—will depend on the final framework implemented by SEBI. Investors may track future regulatory filings to understand how the digital payment landscape for stock trading will evolve.