How will UPI MDR affect your mutual funds and equity investments?
Wealth management platforms could be impacted by the proposed amendment to the Payment and Settlement Systems Act, 2007, which introduces a Merchant Discount Rate (MDR) for UPI and credit card payments
A proposed amendment to the Payment and Settlement Systems Act, 2007, introducing a Merchant Discount Rate (MDR) for UPI and credit card payments could significantly impact wealth management platforms. The potential levy of a fee below 0.5% on transactions above ₹2000, particularly for high-value investment transactions, poses a challenge to platforms like Groww and Zerodha, which operate on thin margins and zero-commission models. While direct cost pass-on to customers is forbidden, companies might face pressure to absorb these costs or indirectly increase product prices. Discount brokers will likely need to rely on secondary revenue sources like account opening fees and AMCs to offset potential losses, while platforms like Groww may see their per-order charges increase if the MDR is implemented. The average transaction value for brokers and dealers suggests the MDR could be an unavoidable cost, potentially exacerbating existing financial pressures for these fintechs unless absorbed.
A proposed amendment to the Payment and Settlement Systems Act, 2007, introducing a Merchant Discount Rate (MDR) for UPI and credit card payments could significantly impact wealth management platforms. The potential levy of a fee below 0.5% on transactions above ₹2000, particularly for high-value investment transactions, poses a challenge to platforms like Groww and Zerodha, which operate on thin margins and zero-commission models. While direct cost pass-on to customers is forbidden, companies might face pressure to absorb these costs or indirectly increase product prices. Discount brokers will likely need to rely on secondary revenue sources like account opening fees and AMCs to offset potential losses, while platforms like Groww may see their per-order charges increase if the MDR is implemented. The average transaction value for brokers and dealers suggests the MDR could be an unavoidable cost, potentially exacerbating existing financial pressures for these fintechs unless absorbed.
A proposed amendment to the Payment and Settlement Systems Act, 2007, introducing a Merchant Discount Rate (MDR) for UPI and credit card payments could significantly impact wealth management platforms. The potential levy of a fee below 0.5% on transactions above ₹2000, particularly for high-value investment transactions, poses a challenge to platforms like Groww and Zerodha, which operate on thin margins and zero-commission models. While direct cost pass-on to customers is forbidden, companies might face pressure to absorb these costs or indirectly increase product prices. Discount brokers will likely need to rely on secondary revenue sources like account opening fees and AMCs to offset potential losses, while platforms like Groww may see their per-order charges increase if the MDR is implemented. The average transaction value for brokers and dealers suggests the MDR could be an unavoidable cost, potentially exacerbating existing financial pressures for these fintechs unless absorbed.
The government’s proposed amendment to the Payment and Settlement Systems Act, 2007, that allows the introduction of a Merchant Discount Rate (MDR) for UPI and credit card payments can potentially affect wealth management platforms.
Reports suggest that the government can levy a fee below 0.5 per cent on high-value transactions above ₹2000. For instance, a ₹2500 transaction would result in both the issuing and acquiring banks getting a sum of ₹3 each.
When users pay through investment platforms, such an additional cost levied could be significant, as the revenue it collects from one mutual fund distribution or stock trade is already minimal.
Apps typically get a revenue margin of 0.75 per cent on mutual fund distributions. Subtracting an MDR of 0.25 to 0.40 per cent will amount to a new revenue margin of 0.35 per cent.
For platforms like Groww and Zerodha, the pressure is higher because they charge zero commissions for mutual fund transactions.
Merchants are strictly forbidden from passing on MDR costs to customers. But as the companies face higher pressure, this may still cause a slight increase in product prices.
Discount brokers such as Zerodha charge around 0.03 per cent for equity intraday and ₹0 for long-term holdings; the platform will have to absorb the losses from secondary revenue sources.
This can include sustaining the revenue collected from the account opening fee of around ₹200 and Annual Maintenance Charges (AMC) of around ₹300 per year.
While Groww charges no account opening fees or maintenance charges, it charges 0.1 per cent or up to ₹20 per executed order, which can gradually increase if the MDR is implemented.
The average value for transactions involving brokers and dealers was around ₹8,963 in 2026, which makes the MDR unavoidable.
Unless these extra costs are absorbed, the proposed MDR can add to the company’s loss. However, the amendment is proposed and has not been implemented yet.