In a major boost to digital payments, the government has said that all businesses with a turnover of Rs 50 crore or more have to operationalise payments through Rupay and Bhim UPI, failing which they have to pay a hefty penalty of Rs 5,000 per day from February 1. However, the non-bank payments industry has criticised the move, calling it nationalisation of the UPI ecosystem.
There has been a surge in digital payments, especially post demonetization. The value of UPI transactions had breached the Rs 2 lakh crore mark in December last year, witnessing a 100 per cent rise year-on-year. It is for the first time since UPI’s inception in 2016 that the value of transactions has reached Rs 2 lakh crore.
But, the surge has gone in favour of private sector players such as Paytm, Google Pay and PhonePe, which dominate the UPI space as most of the transactions are done via these platforms. Government-run BHIM, which also uses UPI, still trails its private sector peers.
However, after this Central Board of Direct Taxes (CBDT) notification comes into place, the market will tilt in favour of Rupay and Bhim, with both expected to see a major boost. The CBDT notification says that business establishments with an annual turnover of more than Rs 50 crore, shall offer low-cost digital modes of payment (such as BHIM UPI, UPI QR Code, Aadhaar Pay, Debit Cards, NEFT, RTGS etc.) to their customers, and no charge or Merchant Discount Rates (MDR) shall be imposed on customers and merchants.
MDR refers to the cost paid by a merchant to a bank for accepting payment through electronic means such as credit card, debit card etc. As announced by finance minister Nirmala Sitharaman, the Reserve Bank of India (RBI) and banks will absorb these costs from savings that will accrue to them on the account of handling less cash. And even though businesses are free to use any other electronic mode of payments apart from those prescribed, there will not be a mandatory requirement to waiver MDR.
This decision has come as a shock for non-bank payment industry players, with some saying that the decision will hurt their business prospects and affect further investment. “This is like nationalisation of payments by the Indian Government. It will hurt other players and it is not level playing field,” a senior official from Paytm said.