UPI MDR Proposal: Wealth Platforms Face Margin Squeeze
By Business Desk
India’s proposed UPI MDR on high-value transactions threatens wealth management platforms’ thin margins, potentially impacting investment costs.
A proposed amendment to India’s Payment and Settlement Systems Act, 2007, aims to introduce a Merchant Discount Rate (MDR) on UPI and credit card payments. This development is set to notably impact wealth management platforms operating in the country.
The amendment suggests a fee, potentially below 0.5%, on transactions exceeding ₹2000. For instance, a ₹2500 transaction could result in both the issuing and acquiring banks receiving ₹3 each.
Margin Compression for Investment Apps
This additional cost poses a significant challenge for investment platforms, which already operate with minimal revenue margins from mutual fund distribution or stock trades. Apps typically earn approximately 0.75% on mutual fund distributions.
An MDR ranging from 0.25% to 0.40% could reduce these existing margins to about 0.35%. While merchants are prohibited from directly passing MDR costs to customers, companies may need to absorb these losses or indirectly increase product prices.
Impact on Leading Platforms
Platforms like Groww and Zerodha, which offer zero commissions for mutual fund transactions, face increased pressure from this potential fee. Their operational models rely on different revenue streams to sustain their services.
Key details for these platforms include:
Zerodha: Charges around 0.03% for equity intraday trades and nothing for long-term holdings. It relies on secondary revenue streams such as account opening fees, typically around ₹200, and Annual Maintenance Charges (AMC) of approximately ₹300 per year.
Groww: Does not charge account opening or maintenance fees. It currently levies 0.1% or up to ₹20 per executed order, a charge that could gradually increase if the MDR is implemented.
Unavoidable Costs and Future Outlook
Given that the average transaction value for brokers and dealers was approximately ₹8,963 in 2026, the proposed MDR is considered an unavoidable cost for these entities. Unless absorbed by the companies, these extra expenses could contribute to financial losses.
It is crucial to note that this amendment remains a proposal and has not yet been implemented. The industry awaits further clarity on its potential implications for the fintech ecosystem.