UPI MDR Could Raise Costs for Brokers, Mutual Fund Platforms

The proposed merchant discount rate, or MDR, on some UPI transactions could raise the cost of processing investments for brokers, wealth platforms and mutual fund distributors if financial services are brought within the final framework.

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The government is considering levying MDR on UPI payments made to large merchants, with reports suggesting a charge of below 0.5% on transactions above ₹2,000. The final rate, threshold and the categories that would be covered have not yet been announced. The government has also said the proposal is not aimed at charging consumers directly, with the levy being examined for a limited set of merchant transactions.

For investment platforms, however, even a relatively low MDR could materially alter transaction economics.

In mutual fund distribution, apps and platforms typically operate on margins of around 0.75%, according to Moneycontrol. If MDR is fixed in the 0.25% to 0.30% range, that could erode as much as a third of that margin. In practice, a 0.25% MDR would translate into a ₹25 processing cost on a ₹10,000 SIP or lump-sum mutual fund investment, and ₹125 on a ₹50,000 transaction.

That pressure could be sharper for direct-plan platforms, which do not earn distribution commissions from fund houses. In such cases, any MDR-linked cost would either have to be absorbed by the platform or passed on elsewhere in the business model.

The impact may not be limited to mutual funds. Brokers could also face higher costs where customers use UPI to fund larger investment transactions. Since the levy, if introduced, would recur across high volumes of payments, platforms handling large numbers of transactions could see their already thin economics come under pressure.

An executive at an investment platform, cited by Moneycontrol and requesting anonymity, said it was too early to assess the full impact because the framework had not been finalised. The executive said the industry would need clarity on the rate and the transaction categories before deciding how to prevent customer impact.

The issue is significant because digital investment platforms are now handling very large recurring flows.

Groww reported ₹46,624 crore in mutual fund SIP inflows in FY26, up from ₹34,028 crore in FY25, according to its annual report cited by Moneycontrol. The platform had total customer assets of ₹2.96 lakh crore. It accounted for 43% of new SIPs created in FY26 and held a 3.4% share of retail mutual fund assets. Direct-plan assets made up around 28% of equity mutual fund AUM, up from 9.6% when Groww began operations.

Angel One, in its Q1 FY27 investor presentation, reported 38.6 million users and ₹1.7 trillion in assets under custody as of June. The company said it had around 3.6 million mutual fund users, with more than 70% of them running more than one SIP, and ranked second in incremental SIPs. Zerodha, through Coin, also offers direct mutual fund investing, making the issue relevant across the digital wealth ecosystem.

The potential burden is amplified by the size of transactions in financial services. According to reports cited by Moneycontrol, transactions involving securities brokers and dealers averaged ₹8,963 in 2026, up 5.3% from ₹8,512 in 2025, making it the largest category by average transaction value.

That means even a low MDR can quickly add up in this segment.

The broader objective behind the proposal is to improve the economics of the UPI ecosystem. But for capital-market intermediaries, the key question is whether financial transactions will be classified in a way that attracts a merchant charge and, if so, whether the cost can be absorbed without changing pricing for investors.

Until the government finalises the structure, brokers, mutual fund distributors and wealth platforms are left with a wait-and-watch approach. But the early concern is clear: if financial services come within the MDR net, digital investing could become more expensive for the platforms facilitating it, and potentially for end users as well.