Nithin Kamath says new UPI charges on investing, broking don’t make sense: 'I don't see how we can absorb this indefinitely'
Zerodha CEO Nithin Kamath said the new UPI MDR framework may not make economic sense for investing and broking, where customers can transfer funds without trading. He said brokers may struggle to absorb the costs indefinitely, particularly under quarterly settlement rules, and suggested a lower MDR with a transaction-level cap.
Zerodha CEO Nithin Kamath expressed his concerns over the government's new Merchant Discount Rate (MDR) on certain UPI transactions exceeding Rs 2,000. While acknowledging the inevitability of the MDR, Kamath feels it does not make sense for specific use cases, such as investing and broking. The NPCI announced the MDR would commence from October 15, with merchants paying 0.4% on transactions above Rs 2,000.
Kamath argued that the MDR structure is problematic for broking, as there is no guarantee that transferred funds will result in a transaction. He provided an example of 10,000 customers making 50 UPI transfers of Rs 2 lakh in a month without trading, which could cost the broker around Rs 2 crore without generating any business. Moreover, the quarterly settlement (QS) regulation complicates the situation further, as brokers must return unused funds to clients, frequently through UPI, resulting in additional costs.
Despite Kamath's stance that an MDR is acceptable, he believes the proposed rate of 0.4% is too high for broking scenarios. He suggested a significantly lower rate, around 0.02%, with a cap of Rs 5 or Rs 10 per transaction, rather than the current cap of Rs 300.
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