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The Zerodha Boss Explains How the New UPI Feature Would Facilitate Share Trading

On Wednesday, Zerodha CEO Nithin Kamath stated that the Reserve Bank of India’s (RBI) decision to implement the single-block-and-multiple debits functionality on the Unified Payment Interface (UPI) platform will benefit share market trading.

Kamath predicted that the broking sector would be even more technologically advanced than financial services.

The RBI announced today that it would add new functionalities to existing UPI platforms that would allow for multiple debits. The CEO of Zerodha has listed some intriguing outcomes for the brokerage business. Here it is:

  • The brokerage sector has a tumultuous history, with a few firms abusing customer cash. The regulatory adjustments over the last few years have made such occurrences unlikely in the future. However, guaranteeing the safety of retail investors is SEBI’s primary responsibility.
  • A broker, unlike in the past, cannot retain customer securities in a pool account; they must be held in the customer’s personal demat account. As a result, the risk is restricted to the broker’s idle funds. As a result, SEBI has directed that unused monies be returned to the customer bank once every 30/90 days.
  • If retail investors did not have to transfer funds to the broker and the money moved directly from the client bank to the clearing business, this risk would be fully eliminated. And it is for this purpose that a UPI mandate blocked in the name of Clearing Corp (CC) might be employed.
  • Because UPI is only one of the payment systems used by investors, and UPI has transaction limits, this is likely to be optional. However, if this happens, it may provide an option for investors who do not want to be subject to broker risk.
  • A blocking mechanism is likewise unlikely to be implemented for intraday stock and F&O trades, which pose a substantially higher risk to the CC. If funds are not held by the CC before permitting leveraged trades, the CC may be exposed to banking technology and default risks.
  • The good news for the industry is that if this occurs, the operational and compliance burden of being accountable for customer monies will be eliminated, at least for customers who use UPI requirements. Broking will be even more technologically advanced than financial services.
  • The advantage that bank-based brokers enjoy in terms of customers effortlessly using money in the bank for trading and other activities would be lost.
  • However, brokers earn interest on unused money until they are returned once every 30/90 days. As a result, sales will suffer.
  • If this happens, there are both positives and negatives. However, it is incredible how India and our regulators are embracing technology to potentially eliminate many difficulties that have previously plagued financial services.

The RBI Plans to Include a Function in the UPI Platform

The RBI has chosen to include a function in the UPI platform to help with payments where products and services are delivered later, such as e-commerce purchases, hotel reservations, or stocks investments.

Customers will have more faith in such transactions thanks to the’single-block-and-multiple debits’ functionality on the Unified Payment Interface (UPI) platform. The functionality will also come in handy when purchasing government assets through the RBI’s retail direct scheme.

Users can currently make recurring payments using the UPI AutoPay service. However, retailers can only accept payment through a single debit. Merchants can now make multiple debit transactions within a set limit with this new capability.

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