Right intention – Wrong Policy : Zero MDR on RuPay and UPI will have a negative impact of the payments growth, says PCI
Mumbai, India, January 5, 2020 : On the 28th December,2019 the finance minister facilitated the implementation of No MDR budget announcement, shared that the Department of Revenue (DoR) will notify RuPay and UPI as the prescribed mode of payment for undertaking digital transactions without any MDR. Accordingly, all companies with a turnover of Rs. 50 crore or more shall be mandated by DoR to provide the facility of payment through RuPay Debit card and UPI QR code to their customers. All banks will also start a campaign to popularise RuPay Debit card and UPI.
On this surprising announcement by the government, Vishwas Patel, Chairman, Payments Council of India (PCI) and Director Infibeam Avenues said, Payment Service Providers play a vital role in growing digital payments. The prohibition on charge of MDR on Rupay and UPI would kill the industry and make the business model unviable. It’s like nationalization of the payments industry. There would be a significant negative impact on the payment ecosystem –innovation, job losses and slowdown in the expansion of the digital payments in India. It would also result near stoppage in customer incentive spends by the participants.
Elimination of MDR will dry out revenues and therefore will create catastrophic situation for new start-ups and FinTech’s, as banks will not pay for their service. Additionally, if there is zero revenues to be made from the over 500 million plus rupay debit cards that are active in our country, then service providers will start withdrawing the existing deployed POS terminals from unviable small shops and establishments as continued maintenance of these POS machines, training and supply of printer rolls etc. will increase their losses. If the government wants to grow digital payments acceptance, then making MDR zero is not the solution, a lower controlled MDR along with added tax benefits to merchants will go a long way in growing acceptance in India, he added.
While compulsory usage of various digital payment options by all merchants above the turnover of INR 50 crores along with penalty mechanism in case the same are not offered, is a positive move, but the zero MDR for all merchants for RuPay and UPI transactions, has not gone well with and is not appreciated by the payments industry. PCI, the representative body of merchant acquirers and aggregators had multiple meetings with the Ministry of Finance post the budget announcement to explain the actual on ground situation and the actual merchant issues and how this announcement will affect the expansion of digital payments adversely.
The decision to hastily implement zero MDR for Rupay as well as UPI is going to impact the whole digital payment industry as well as investments into the industry. Especially debit card which required infrastructure like PoS, switches etc and continuous operations to mitigate risks and frauds would become extremely difficult to manage. Current ongoing regime of ‘No MDR Charge for below Rs. 2000 transactions were already working and was supported by the industry.
Various discussions as well as reports from Payments Expert Committees just before this budget like Nandan Nilekani of RBI and earlier Dr. Watal Committee of NITI Aayog recommended market driven pricing and only correction in ratio of sharing between Issuing and acquiring Banks with increase for acquiring bank to drive POS deployment for merchant.
Digital payments vs Cash during demonetization was around 13% of retail spent and are now around 11% with increasing cash in circulation. Such move would weaken industry position to drive growth aggressively. Also, it is irrational to pass on benefits to large retail merchants for transactions above 2000 which are also earning revenue and doing business for profits. RBI/Banks subsidizing to reduce their cost is misplaced. For UPI on the other hand consider relatively lower capex and operations cost a lower and efficient model can be considered but free is not the right model. Hoping government reconsiders this and discuss with larger eco-systems of Payment Industry involved beyond just Banks and Payment Networks said, Navin Surya, Chairman Emeritus, Payments Council of India (PCI).
The council believes that this announcement will deflate the hard work done by the acquiring industry and MDR if not charged to the merchants, should be borne by the government. This will help the acquirers to focus and invest in expansion of the acquiring infrastructure. Digital payments and Fintech are high growth area and with right policies and support, can work towards acceleration of adoption of digital payments.
