The Centre’s decision to not levy Merchant Discount Rates for payments made through Ru-Pay debit cards and Unified Payment Interface (UPI) instruments has drawn criticism from market stakeholders, several of which claim the move could slow India’s drive toward a less-cash economy.
The policy, besides putting National Payments Corporation of India’s (NPCI) domestic RuPay cards under competitive disadvantage over multinational rivals Visa and Mastercard, also threatens the business models of several home-grown Payment Service Providers (PSPs), industry executives said.
“The prohibition on charging MDR on Rupay and UPI would kill the industry and make the business model unviable. It is akin to nationalisation of the payments industry,” said Vishwas Patel, chairman of Payment Council of India (PCI), an industry body representing more than 100 PSP fintech companies.
“There would be a significant negative impact on the payment ecosystem –innovation, job losses and a slowdown in the expansion of the digital payments in India,” said Patel. “Service providers will start withdrawing the existing deployed POS terminals from unviable small shops and establishments as continued maintenance, training and supply of printer rolls etc. will increase losses.”
Furthermore, past representations by both the Indian BankNSE 0.30 %’s Association and the Payment Council of India have also warned that in a market environment with no incentives for investments, there could be “near stoppage in customer incentive spends by the (market) participants,” and a potential “dry out revenues” for many businesses, as per copies of their letters reviewed by ET. The revenue impact to the government is about Rs 2,500 crore annually.
Mailed queries to the IBA and NPCI remained unanswered.
Finance Minister Nirmala Sitharaman on Saturday said that the zero MDR regime would kick in once the Department of Revenue issued a gazette notification on January 1.
The announcement came after a high-level meeting with top executives of public and private sector banks, where the finance secretary, revenue secretary, economic affairs secretary, electronics and information technology secretary, RBI representatives and the chief executive officer of NPCI were present.
MDR is the fee accrued by ‘issuer’ banks from ‘acquirer’ banks on digital payments and is generally levied from the merchants processing the transactions. The current MDR charges are capped at 0.60% of card-based transactions for payments over Rs 2,000. The costs of MDR below Rs 2,000 for banks are borne by the Ministry of Electronics and Information Technology (MeITY).
“It’s a hara-kiri committed by the government,” a top industry executive requesting anonymity told ET. “Such a policy would put years of hard work done by domestic companies in expanding digital payments network and put NPCI in a competitive disadvantage over international rivals operating in the market.”
There are more than 500 million RuPay debit cards in the market and 4 million POS (point of sale) machines processing debit card payments. With roughly around Rs 14 lakh crore worth of digital transactions per month, the MDR net spends come in at around Rs 7,000 crore to Rs 8,000 crore annually, as per market estimates.
“Nearly 55% of this revenue goes to the private fintech players and the rest goes to the banks,” said Loney Antony, Vice Chairman, Hitachi Payment Services.
According to a PCI spokesperson, Indian PSP startups notably, the likes of Paytm, Mswipe, PhonePe and PineLabs, have attracted billions worth of foreign direct investments over the last few years. “In a scenario where there are no viable business models for these companies, the investments coming in would also take a hit,” Antony added.