Zerodha Founder Nithin Kamath Warns Proposed UPI MDR Could Cost Brokers Crores Without Generating Trading Revenue — September 16, 2026

Zerodha co-founder and Chief Executive Officer Nithin Kamath voiced serious concerns regarding the newly proposed Merchant Discount Rate (MDR) structure for Unified Payments Interface (UPI) transactions, warning that the policy could inadvertently burden stockbroking firms with steep, unrecoverable operational costs.

Kamath pointed out that unlike conventional commerce, where a digital payment corresponds directly to a merchant purchase, a fund transfer into a broking account carries no certainty of generating transactional revenue.

The Mathematics Behind the Warning

In a detailed post on social media platform X, Kamath explained the structural mismatch facing discount brokerages if they are mandated to absorb incoming UPI costs.

"As brokers, we can’t force a customer to trade after transferring money. And if we can’t pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue," Kamath stated.

To illustrate the financial risk, Kamath provided an example:

• If 10,000 customers each execute 50 UPI fund additions of ₹2 lakh within a single month without executing any trades, the accumulated MDR could cost a brokerage firm approximately ₹2 crore without generating any corresponding business.

Under the framework outlined by the National Payments Corporation of India (NPCI), Person-to-Merchant (P2M) UPI transactions above ₹2,000 are scheduled to attract MDR starting October 15, 2026. While consumers continue to initiate transfers free of charge, recipient merchants and intermediaries are subject to the commercial levies, with securities and investment transfers subject to specific percentage bands capped up to ₹300 per transaction.

The Quarterly Settlement Compounding Factor

Kamath emphasized that existing capital market regulations make the broking ecosystem uniquely sensitive to high payment processing costs. Under Securities and Exchange Board of India (SEBI) quarterly settlement norms, brokerages are legally required to transfer unutilised client funds back to their registered bank accounts at the end of every month or quarter.

Because active traders routinely move those returned balances straight back into their trading balances—with Kamath noting that more than half of such redeposits occur via UPI—brokers face continuous cycles of money movement. Under an MDR framework where the receiving broker must foot the bill on each incoming transfer, institutions would repeatedly absorb transaction fees on identical capital pools without enjoying any incremental trading revenue.

Industry Recommendations and Retail Impact

While Kamath acknowledged that introducing an MDR framework on UPI was "probably inevitable" to build sustainable digital payment infrastructure and dilute market concentration among dominant consumer UPI applications, he argued that one-size-fits-all merchant pricing breaks down in investment sectors.

Rather than applying broad merchant fee tiers that can climb to a ₹300 cap per transfer, Kamath suggested establishing a specialized fee tier tailored to capital markets:

• A nominal charge of 0.02% capped tightly at ₹5 or ₹10 per transaction for broking deposits.

Kamath cautioned that modern discount broking models—such as Zerodha’s zero-brokerage equity delivery offering—rely on low overheads and tight unit economics. If high payment processing fees are imposed on repeated fund inflows without structural exemptions, retail brokerages across India may eventually be forced to reconsider free equity delivery or find alternate avenues to recover deposit costs from market participants.

Tags: Zerodha NPCI SEBI Nithin Kamath Stockbroking UPI