Nitin Kamath Discusses Impact of MDR on UPI Ecosystem Amidst Growing Digital Payments

New Delhi, September 16 (Daily Kiran) : Nitin Kamath, the CEO of Zerodha, recently expressed his support for the newly implemented Merchant Discount Rate (MDR) on person-to-merchant (P2M) UPI payments. He stated that this step was inevitable given the widespread adoption of UPI.

In a post on the social media platform X, Kamath noted that the introduction of MDR could help reduce the current concentration in the UPI ecosystem. Presently, over 95% of the UPI market is dominated by just three apps. The new fee structure could foster increased competition among various platforms.

“I believe that the MDR on UPI was bound to happen, especially considering its extensive usage. This could lead to more competition in the market,” he said.

However, Kamath cautioned that the proposed MDR structure might not be suitable for all sectors, particularly for investment and brokerage services. He highlighted that brokers cannot ensure that funds transferred via UPI will ultimately be used for trading. Customers cannot be compelled to trade after transferring funds, meaning that if the burden of UPI fees cannot be passed on to clients, brokers may have to absorb the costs without generating additional revenue.

For instance, he explained that if 10,000 customers each make 50 transfers of ₹2 lakh in a month without executing any trades, a broker could face an additional cost of nearly ₹2 crore under the proposed MDR system.

Kamath also referenced quarterly settlement (QS) rules, which require brokers to return unused funds to clients’ bank accounts monthly or quarterly. Customers often redeposit these amounts into their brokerage accounts, with more than half of these transfers occurring via UPI. This results in brokers incurring UPI fees repeatedly without any increase in revenue.

While he acknowledged the rationale behind implementing MDR on UPI, Kamath stressed the need for a separate arrangement that considers the unique requirements of sectors like investment and brokerage. He warned that rising costs associated with digital payments should not impose an unnecessary burden on the industry.