Digital payments companies are hoping that they are among those who get a favourable treatment in terms of the merchant discount rates (MDR) charges from the finance minister when the government tries to undo some of the measures that have turned out to be dampener for businesses.
While the digital push may be on top of the agenda for New Delhi, it has been a rough ride for most payments companies in the country in the first half. It may get worse if the latest proposal to do away with merchant discount rates for high value merchants.
“Our major source of revenue comes from MDR,’’ said an executive from a leading payments company. The payment companies were already suffering from high costs of compliances on KYC after the Aadhar verdict now will be squeezed both on the cost and the revenue side. “The decision seems to have been taken without the consultation of the stakeholders on the ground.”
The volume of transactions on mobile wallets reduced to 334 million in June as against 393 million in December, according to the latest data available on RBI.
This the first time since the inception of mobile wallet payment that the volume of transactions have seen a decremental growth in the first half of a calendar year. Finance minister NirmalaSitharaman has abolished MDR charges for all merchants with a turnover of over RsRs 50 crore and it would reduce the margins for the payment companies significantly.
“Unlike banks, we don’t have physical infrastructure in most geographies. Also a wallet company cannot cover these costs like banks through interest income. We solely depend on MDR,” said Hemant Gala, head, banking products, PhonePe.
The move on MDR also goes against many recommendations.
“Previous committees constituted by the regulators had arrived at their recommendations to set a market-priced MDR mechanism after months of comprehensive research and multiple meetings with industry stakeholders,” said Naveen Surya, chairman emeritus, Payments Council of India. “There are three pillars on which the payment industry is running — credit cards, debit cards and P2P payments. While the first two legs won’t be impacted much on the revenue side, the P2P businesses would be impacted significantly.” As per the Finance Bill, all merchants with a turnover of over Rs 50 crore are to have compulsory digital payment options and the transactions made on these channels are to not attract any additional fees. A digital channel may include UPI, debit card, credit card or Aadhaar-enabled payments among others.
“RBI and banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment,” the FM has said. The merchant discount rate has three main components: The interchange fees which is charged by the issuer bank or whose account the payment is originating, which makes for about 85% of the fee, the processing fees which is charged by the payments gateway operator such as RuPay, Visa or Mastercard and the remainder of MDR that goes to the acquiring bank.