UPI MDR ‘Inevitable’ Amid Digital Payment Surge, Says Zerodha’s Nithin Kamath

Zerodha CEO Nithin Kamath on Wednesday backed the recently introduced Merchant Discount Rate (MDR) on person to merchant UPI payments and said it was probably required as the digital payment system gained widespread adoption. In a post on social media platform X, Kamath said the introduction of MDR could help address the current concentration in the UPI ecosystem where three apps account for more than 95 per cent of the market. "I think MDR on UPI was probably inevitable at some point, especially given how widespread UPI adoption has become.

It could also lead to more competition," Kamath said in a post on X. However, he said the proposed MDR structure may not be suitable for certain use cases, particularly investing and broking. Kamath said brokers have no guarantee that money transferred to their accounts through UPI would eventually result in a transaction. Since brokers cannot force customers to trade after transferring funds, they could face a cost without generating corresponding revenue if the UPI charge cannot be passed on to customers.

For instance, he said 10,000 customers making 50 UPI transfers of Rs 2 lakh each in a month without executing a trade could potentially cost a broker around Rs 2 crore under the proposed MDR. He also flagged the impact of quarterly settlement requirements under which brokers are required to return unused client funds. “What makes this even more challenging is quarterly settlement (QS). This is a SEBI regulation that requires brokers to send unused funds back to clients every month or quarter,” he wrote. Customers often transfer these funds back to their broking accounts, with more than half of such transfers taking place through UPI, he said. Kamath said this could result in brokers bearing UPI charges on repeated fund transfers without generating incremental revenue.

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