SEBI to Examine Brokers’ Concerns Over UPI MDR Ahead of October Rollout

The Securities and Exchange Board of India will examine concerns raised by stockbrokers over the new merchant discount rate on UPI transactions, as the industry weighs the cost of accepting investor fund transfers under the revised payment framework. 

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

SEBI chairman Tuhin Kanta Pandey indicated on Thursday that the regulator would look into the issues raised by brokers and examine whether their concerns could be eased. 

The matter has come into focus after the National Payments Corporation of India introduced charges on certain UPI merchant transactions. The new framework is scheduled to take effect from October 15. 

Under the revised structure, person-to-merchant UPI transactions above ₹2,000 will attract an MDR of 0.4%. The charge is capped at ₹300 for transactions of ₹75,000 and above. 

Capital-market transactions have a separate rate. Payments involving securities, mutual funds and brokers will attract an MDR of 0.02%, also subject to a maximum charge of ₹300. 

Why brokers are concerned 

For stockbrokers, the issue is not simply the percentage charged on a UPI transfer. Money moved into a trading account does not always result in a transaction. 

An investor may transfer funds to a broker but decide not to place a trade. In such a case, the broker could still incur the payment-related cost without earning brokerage from that transfer. 

This becomes more complicated because of SEBI’s settlement requirements. Brokers are required to periodically return unused client funds. If a customer later transfers that money back into the trading account through UPI, another payment transaction is created and the MDR could apply again. 

The concern is particularly relevant for discount brokers, whose business models generally operate on thin margins. 

The BSE Brokers’ Forum has approached SEBI over the issue, asking the regulator to consider the implications of the new framework for the broking industry. 

Another factor is SEBI’s requirement that registered brokers use valid UPI handles and display them on their websites. The measure is intended to help investors identify verified accounts when transferring money to brokers. 

The introduction of MDR now adds a cost consideration to those UPI fund transfers. 

SEBI has not announced any change to the framework at this stage. The regulator’s position, as indicated on Thursday, is that it will examine the concerns raised by brokers. 

With the new UPI pricing structure due to take effect on October 15, the discussion now centres on whether the cost structure for capital-market transactions requires any adjustment before implementation.