How does the Indian payments industry envision the 2022 Union Budget?

By Puja Sharma

The payments industry in India hopes to have some relief which can then be used by them to further expand the digital payments infrastructure of the country and work on some new innovative initiatives to further digital financial inclusion in the country

The Payments Council of India [PCI], the largest industry body for the digital payment ecosystem in the country, said that the digital payment industry wishes for the rollback of the Zero MDR regime for UPI and Rupay debit cards in the country in the 2022 Union Budget.

The Central Government and RBI have played a catalytic role in the development and growth of digital payments in the country thereby progressing towards achieving the goal of a “less-cash society”. The industry appreciates the incentive of Rs 1,300 crore to be reimbursed to banks, which is another step in the direction to achieve the Government’s Goal of Digital India and will help the industry sustain.

PCI was formed under the aegis of IAMAI in the year 2013 catering to the needs of the digital payment industry. The Council represents various players in the payments and settlement system to address and help resolve various industry level issues and barriers which require discussion and action.

What is MDR?

The Merchant Discount Rate: For accepting payments via UPI, or any other payment method, merchants pay a Merchant Discount Rate or MDR. A percentage of the transaction value is usually calculated through UPI.

Several counterparts are involved in a B2C (business-to-consumer) transaction. Payment is made by a paying customer, a merchant, (their Issuing Bank), (their Acquirer Bank), and a Payment Service Provider (“PSP”, which also includes startups in the FinTech space such as PhonePe, Google Pay and BHIM). To facilitate payments, each of these intermediary parties must incur additional costs and credit risks. These are, to a certain extent, offset by the fees that they receive as a result of these digital payments.

The council works with all its members to promote payments industry growth and to support our national goal of ‘Cash to Less Cash Society’ and ‘Growth of Financial Inclusion which is also the Vision Shared by the RBI and Government of India. PCI works closely with the regulators i.e. Reserve Bank of India (RBI), the Finance Ministry, and any similar government, departments, bodies, or institutions to make ‘India a less-cash society.

What does the industry expect?

The industry expects a loss of Rs 5,500 crore from UPI and RuPay MDR being Zero. There is still a huge gap to cover so that everyone in the payments value chain gets their credit. With Zero MDR, the government has taken away the ability of these Payment Service Providers (PSPs) to invest in and maintain the financial infrastructure they have built.

PCI in its request to the Ministry of Finance has requested for a rollback of the Zero MDR regime for UPI and RuPay debit or to incentivize the industry with an amount of Rs 4,000 crore to bridge this gap. The industry hopes to have some relief which can then be used by them to further expand the digital payments infrastructure of the country and work on some new innovative initiatives to further the digital financial inclusion in the country, PCI said in a statement.

On this submission, Vishwas Patel, Chairman, the Payments Council of India and Director, Infibeam Avenues, said: “We request the government to consider a rollback of the Zero MDR, to broaden and significantly grow the merchant acceptance base particularly in the MSME space and also to facilitate the deployment of payments infrastructure by non-bank players who have been the biggest deployers of capital in this area for the past few years”

Furthermore, PCI suggests deleting Section 10A from the PSS act and to remove UPI, UPIQR, and RuPay from the ambit of rule 119AA of the Income Tax Act, for the development of the digital payments sector.

These suggestions have been made keeping in mind the interests of digital payment services, creation of sustainable models and job creation in the digital payment ecosystem, empowerment of consumers through the digital ecosystem, and driving investments in the Indian digital ecosystem. PCI expresses optimism that the Government will take into consideration the criticality of the matter and provide relief to the sector.