Discount brokerage firms including Groww, Zerodha, Angel One, Upstox and others have approached the Securities and Exchange Board of India (SEBI) seeking changes to the proposed framework for merchant discount rate (MDR) on UPI transactions, according to sources privy to development. The brokers have proposed that MDR for capital-market transactions be limited to around 2 basis points, with an absolute transaction fee cap of ₹2-5, arguing that such a structure would prevent the additional payment cost from being passed on to customers while keeping the impact manageable for brokers and other participants in the ecosystem. According to industry sources, the proposed ₹300 cap is largely irrelevant for capital-market transactions, as at an MDR rate of 2 percent, a ₹300 cap would be reached only at a transaction value of around ₹15 lakh, while UPI transaction limits are around ₹5 lakh for relevant transactions.
A flat fee of about ₹5 could replace the 0.02 percent MDR, capped at about ₹300, for capital-market transactions conducted through UPI, according to people familiar with the matter. The proposed change is likely to require a formal representation from the Securities and Exchange Board of India (Sebi), followed by approvals from the Reserve Bank of India (RBI) and the government, before it can be notified by the National Payments Corporation of India (NPCI). The move would bring capital-market transactions in line with categories such as insurance, education, bill payments, government payments, fuel and agriculture, where UPI transactions follow a flat fee structure. "Stockbrokers' ask is that UPI transactions for capital markets should attract a flat fee of ₹5. Once a formal representation comes through from Sebi, the flat fee can be notified, provided it receives approval from the RBI and the government as well. It is similar to the fee structure for insurance transactions through UPI," said a person familiar with the matter.
The BSE Brokers' Forum (BBF) has formally approached the Securities and Exchange Board of India (Sebi) expressing concerns about the new UPI MDR structure, as reported by market sources. Uttam Bagri, Managing Director of BCB Brokerage Pvt. Ltd., stated that "treating stockbrokers as merchants for MDR is fundamentally misplaced: brokers are largely pass-through entities, with client funds flowing to clearing corporations for margins and settlement." The regulatory challenge is particularly acute as individual investor participation on NSE has surged from 1.1 crore as of August 2020 to 3.59 crore as of August 2025, representing a more than threefold increase in retail participation. This growth in retail participation coincides with the implementation of the new MDR structure, creating additional pressure on discount brokers operating on wafer-thin margins.
Brokers are expressing serious concerns about the 0.02 percent MDR applying even to transfers of client funds into their own accounts, which they argue are not commercial transactions. Ajay Kejriwal, Director at Choice Broking, stated that "there should be no MDR on a client transferring funds to their own broking account. This is merely a movement of their own money for the purpose of investing or trading and does not represent a commercial transaction by the broker." As reported by market experts, brokers may look to change the payment behaviour of frequent users and promote alternatives such as direct net banking, NEFT/RTGS virtual accounts and secondary-market UPI block mechanisms to reduce the need for repeated ad-hoc UPI pay-ins. The concerns center on the quarterly settlement requirement that forces brokers to return unused client funds, potentially resulting in additional payment costs when money moves back into brokerage accounts without generating incremental revenue.
The scale of UPI transactions in the securities sector is substantial, with 84.12 million UPI transactions worth ₹63,667.21 crore recorded in August in the securities brokers and dealers category, according to data. On a cumulative basis, the industry would have had to pay about ₹125 crore a year under the new framework, according to sources. "Most stockbrokers in India have a healthy business model and could have been able to afford these costs," the person quoted above said. After the MDR framework was announced, broker associations wrote to Sebi raising concerns and entered discussions with the regulator over the resulting increase in operating costs. "I think having an MDR is okay. It still doesn't solve the problem of customers transferring money without transacting, but something like 0.02 per cent with a cap of ₹5 or ₹10 per transaction seems much more reasonable for broking, instead of a cap as high as ₹300," Nithin Kamath, founder of discount brokerage Zerodha, wrote in a social media post.
