Mumbai, Oct. 3 -- Stock brokerages are considering new charges, including mandate-based payments, new transaction fees and fewer free offerings, to cushion the impact of a merchant discount rate (MDR) on UPI transactions, according to people familiar with the matter. The MDR framework, which takes effect from 15 October and adds a 0.02% charge on UPI transactions for capital-market payments, capped at Rs.300 per transaction, threatens to squeeze already-thin margins. While the National Payments Corp. of India (NPCI) has said UPI charges should not be passed on to consumers, the framework has left brokerages looking for ways to protect their margins regardless. The concern stems from a mismatch: money transferred into a trading account doesn't always result in a trade. An investor may move funds in and leave them unused, while the broker still bears the payment-related cost. Sebi rules compound this, requiring brokers to return unused client funds every month or quarter, generating yet more transactions, and yet more cost, without any corresponding revenue. "Unlike other business transactions, brokerage houses receive funds very often towards margin. Every transaction is not going to generate income," said K. Suresh, president and chief executive officer at India Cements Capital. "We are expecting a hit of Rs.5 crore to Rs.6 crore on revenue monthly after the MDR is implemented. In the long term, we may look at increasing our brokerage costs or introducing another line of charges to offset the impact of the charges," said an official who works for one of the top brokerages in the country. One option being considered is the use of mandates. A brokerage official said brokers could use mandate-based payments, where the maintenance charge is around Rs.3.25 a quarter, instead of incurring an MDR every time an investor moves money through UPI. For instance, if a customer makes four UPI transactions of Rs.5,000 each in a quarter, the MDR at 0.02% would amount to Rs.4, while a quarterly mandate maintenance fee would be around Rs.3. The economics become more significant at higher transaction values: a Rs.5,000 transaction would attract Rs.1 in MDR, while a Rs.5 lakh transaction would attract Rs.100, given the 0.02% rate and Rs.300 cap. The cost economics matter most for brokers that offer certain services for free. Zerodha, for instance, offers equity delivery transactions at no brokerage, meaning the firm earns no brokerage income when investors buy equity stocks on its platform. The broker charges 0.03% or Rs.20 per executed order, whichever is lower, on equity intraday and futures transactions. A flat fee of Rs.20 is charged for each executed order for stock options. The brokerage model varies across firms. Angel One offers zero brokerage on stock investments up to Rs.500 for the first 30 days. Similarly, intraday trading attracts no brokerage up to Rs.500 for the first 30 days, after which the charge is Rs.20 or 0.1%, whichever is lower, subject to a minimum of Rs.5. Angel One is India's second-largest broker by active client base, with 3.97 crore active clients, according to NSE data. Some brokerages are also considering increasing brokerage charges or introducing new fees to offset the impact of MDR. "We currently don't charge brokerage on equity delivery trades because the economics allow us to offer them for free. But if every UPI transfer starts carrying an additional cost, irrespective of whether the customer actually trades, I don't see how we can absorb this indefinitely," said Nithin Kamath, chief executive officer at Zerodha, in an X post on 16 September. The brokerage is therefore discussing whether to introduce a charge on cash-market transactions. "Somebody has to pay for the MDR charges," another broking official said on condition of anonymity. "There are active discussions in Zerodha on levying a charge on cash-market transactions." For a broker, the issue is not limited to the size of the MDR on an individual payment. The cap on such charges is expected to provide little relief. An emailed query to Zerodha did not elicit a response. "The Rs.300 cap on MDR for UPI transactions does not hold a lot of relevance for the capital markets as the maximum amount one can transact via UPI to brokers and insurance is Rs.5 lakh. A 0.02% charge on Rs.5 lakh would not be more than Rs.300 in any case," he added. NPCI has set limits on the maximum transaction amount for a single transaction as well as over 24 hours for certain merchants....