India considers reintroducing merchant discount rates on large UPI transactions, prompting concerns among brokers, mutual fund distributors and the wider financial sector about potential impacts on profitability and transaction costs.
India’s proposal to reintroduce merchant discount rates on selected Unified Payments Interface transactions is stirring concern across parts of the financial services industry, particularly among brokers, wealth managers and mutual fund distributors that rely heavily on high-value digital payments. According to reports from Moneycontrol and Livemint, the government is weighing a levy on large merchants, with the charge for payments above ₹2,000 said to be below 0.5%, although the final rate, threshold and business categories have not yet been settled.
The issue matters most for platforms operating on thin margins. Moneycontrol reported that mutual fund distribution businesses often earn about 0.75% in margins, meaning even a 0.25% to 0.30% fee could bite sharply into profits. On that basis, a 0.25% charge would add ₹25 to a ₹10,000 investment and ₹125 to a ₹50,000 transaction. An executive at an investment platform told Moneycontrol it was too early to judge the effect because the framework has not been finalised, though firms would try to avoid passing on extra costs to customers.
The possible impact is even sharper for direct mutual fund platforms, which do not receive commissions from fund houses and would have to absorb the cost themselves or push it on to investors. The concern comes as UPI continues to scale rapidly: Livemint reported that the system processed 22.72 billion transactions worth ₹28.92 trillion in June, underlining the question of who pays to maintain the infrastructure behind India’s most widely used retail payment rail. The debate has also drawn policy attention, with a parliamentary committee arguing that the zero-MDR model is no longer financially sustainable, while the government has indicated that small businesses and consumers are likely to be left out of any new charge.
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