The recent budget proposal that seeks to further incentivise digital payments hasn’t gone down well with the larger body of payment companies. The issue is not about increased digitisation, which has been the thrust area especially since demonetisation, but the proposal not to impose Merchant Discount Rate (MDR) on customers as well as merchants.
On the one hand, the Budget brought in a tax on cash withdrawals beyond Rs 1 crore from an account in a year, and on the other, it proposed that business establishments with an annual turnover of more than Rs 50 crore offer low-cost digital payment modes to their customers such as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT, RTGS etc.
Finance Minister Nirmala Sitharaman in her budget speech said, “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”. While the banks with multiple revenue streams might be able to absorb the costs, and dominant players in the digitisation space look at the volumes and related advantages, many payment service providers are concerned about the fallout of such a move.
The Payments Council of India (PCI), an association representing over 100 players welcomed the compulsory digital payment by all merchants with over Rs 50 crore turnover, but said the zero MDR for all merchants “has not gone well with and appreciated by the payments industry”. MDR is a charge a merchant pays to a bank for accepting customer payments through debit or credit cards, BHIM/UPI/Aadhaar-Pay payment ecosystem, when any payment is made at a merchant Point of Sale (POS) machine or QR “scan & pay” systems or an online mode of payment. A percentage of the transaction amount is then split between the stakeholders.
The primary fear among industry players is that banks that have been asked to bear the cost might try to recover from non-bank payment providers and fintech companies. The card issuing banks, payment service providers, and the whole ecosystem should be able to find value in acquisition and payments. However, zero MDR will make the acquiring industry collapse, fears PCI.
“Non-Bank payment service providers (PSPs) like aggregators/ processors are a significant part of the ecosystem. If there is no commercial model, they will be forced to shut down, banks may have multiple ways to recover money from the merchants, but non-bank players do not have any other avenue than the MDR,” said Loney Antony, vice chairman, Hitachi Payments.
The RBI, in its vision document on Payment and Settlement System for 2019-21, said that it would stick to minimal intervention in pricing of charges to customers for digital payments, though it would aim at efficient and price-attractive payment systems. RBI noted that there should be a shift from transaction value-based pricing slabs to fixed minimum transaction-based pricing.
“This announcement of industry bearing MDR would lead to the whole digital payment industry standing without any business and revenue model. The charge of 2 per cent TDS on cash above Rs 1 crore received by the bank would not be sufficient for the larger eco-system to be rewarded for their efforts,” said Naveen Surya, Chairman, FCC and Chairman Emeritus, PCI.
Budget proposal sparks debate
The Payments Council of India (PCI), an association representing over 100 players welcomed the compulsory digital payment by all merchants with over Rs 50 crore turnover, but said zero MDR for all merchants “has not gone well with and appreciated by the industry.”
The primary fear among industry players is that banks that have been asked to bear the cost might try to recover from non-bank payment providers and fintech companies. The card issuing banks, payment service providers, and the whole ecosystem should be able to find value in acquisition and payments. However, zero MDR will make the acquiring industry collapse, fears PCI.
RBI had suggested a shift from transaction value-based pricing slabs to fixed minimum transaction-based slabs.