How do payment-system cost structures affect the viability of low-cost/zero-brokerage business models in India's capital markets?

Zero-brokerage platforms earn almost nothing per order, monetising instead volume, float and ancillary services. Their unit economics are therefore acutely sensitive to per-transaction payment costs — a sensitivity exposed by NPCI's 2026 decision to levy a Merchant Discount Rate (MDR) on UPI merchant payments [1].

How payment costs enter broker economics

• MDR is an ad valorem levy on the rupee value moved, not on orders: 0.4% on P2M payments above ₹2,000, capped at ₹300, with a 0.02% carve-out for capital market payments to brokers, mutual funds and dealers [1].
• The zero-MDR regime since 2020 was sustained by budgetary incentives, such as the Cabinet's ₹1,500-crore scheme for low-value BHIM-UPI (P2M) transactions [2]; as that cushion narrows, the cost migrates to the acquiring/merchant side — here, the broker.
• SEBI's running-account settlement norms require periodic return of unused client funds [3], so the same money is transferred in and out repeatedly — multiplying MDR incidence even on non-trading transfers.

Why viability is stressed

• Cost scales with fund flows, not revenue: high-ticket margin top-ups and lumpsum investments attract the largest absolute charge while yielding flat or nil brokerage.
• Dependence on a single dominant rail (UPI) leaves discount brokers and AMCs as price-takers, with limited room to absorb or negotiate.
• Passing costs to clients risks deterring small-ticket, first-time investors, working against capital-market deepening beyond metros.

Countervailing cushions

• The concessional slab, ₹300 cap, exemption of sub-₹2,000 payments and of auto-pay mandates largely insulate retail SIPs [1].
• Regulatory easing — such as SEBI's measure on settling accounts of clients who have not traded in 30 days [4] — can reduce avoidable fund churn.

Payment pricing is thus no longer a back-office detail but a determinant of market-access costs. A consultative recalibration among SEBI, RBI and NPCI — as SEBI has signalled by agreeing to hear broker and AMC concerns [5] — can preserve both a sustainable payments ecosystem and the low-cost access that has widened retail participation.