The Payment Council of India (PCI), an industry body representing all kind of digital payments and various regulated non-banking payment industry players, has written a letter to the Reserve Bank of India voicing its concern over the Indian government’s decision to abolish MDR (merchant discount rate).
Reserve Bank of India
The council, which would be submitting the letter to the banking regulator either today or early next week, has pointed out the various challenges that the payment industry will face in the absence of MDR, according to sources.
The PCI, when contacted, declined to give out any details.
For the uninitiated, MDR is a charge levied for making card transactions both offline and online and is distributed among all the parties involved including the card companies, banks and the POS terminal providers. The charges range from INR 12- INR 15 per transactions on amount above INR 2,000.
However, the government has decided to make it free for customers and retailers even for higher value transactions done via debit cards in a bid to boost digital transactions in the country.
The letter highlights that in absence of MDR income, the POS (point of sale) providers and PSPs (payment service providers) will be left without any revenues that will lead to the collapse of the payment industry. Hence, it is imperative for the government and the regulator to take steps in addressing this challenge.
It has further stated that while there are several other ways for banks to recover such costs, but for the PSPs there is no other way to recover the cost that they incur on the acquiring infrastructure provided by them.
The Government’s focus on creating a less-cash society for the last few years have given rise to several FinTech players trying to facilitate digital transactions in the country. The segment has also received a high interest from strategic investors globally and such inconsistency in policies would impact the investor sentiment, it mentions adding that such arbitrary changes in polices would dry up investments in the space and impact the Government’s goal of achieving 40 billion digital transactions by 2020.
While, the intent is to promote digital payments including UPI and QR-code, PCI in a statement earlier said that the move to abolish MDR will adversely impact the usage of debit cards going ahead thus impacting the business of companies such as Mastercard and Visa and POS companies such as Mswipe and Mosambee among others with no incentives to carry on with free transactions.
According to industry sources, about 80-90 per cent of the revenues, for POS terminal providers, came by the means of MDR.
“They are going to suffer with no means of revenue generation,” a top banking official told IBS Intelligence on condition of anonymity. The move is an added blow for the POS providers as the banks, for the last four years, have been reducing installations of the card swipe machines at retail points.
Naveen Surya, PCI ‘s Chairman Emeritus, said that with no MDR charges for stakeholders, 70 per cent of the card transaction volumes and 50 per cent of the transaction value is under risk.
India’s MDR is the lowest across the globe even when the monthly retail digital payments volumes are negligible at USD 250 billion, as per Vishwas Patel, Chairman, PCI, and Director- Infibeam Avenues.
He further added that MDR is not the real issue for a retailer to not accept debit cards but avoidance of tax and hence urgent simplification of GST and Income Tax is required.
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