Given higher costs, digital payment providers doubtful of banks footing the bill
Who will bear the cost of zero Merchant Discount Rate (MDR)? This is the question payment solution providers are now asking and have sent representations to the Finance Ministry and the Reserve Bank of India.
This follows the Budget proposal that no MDR will be imposed on customers and merchants.
“Reserve Bank of India and banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move,” Finance Minister Nirmala Sitharaman had said as part of a slew of measures to further encourage digital payments.
However, digital payments companies believe banks will choose not to deploy such infrastructure rather than foot the bill for such spends.
Similarly, whether and how the RBI would reimburse the cost is still unclear.
Higher operating costs
“We have sent representations to all stakeholders. If the government is willing to reimburse it, we are well and good. If banks have to pay us, they will say they don’t want to deploy. They have their own businesses to run,” said Loney Antony, Co-chairman, Payments Council of India, and Vice-Chairman, Hitachi Payments.
Nearly half of the 40-lakh payment terminals deployed in the country are by third-party companies and payment solution providers.
These firms point out that ATM infrastructure is already coming to a standstill as banks are not keen on footing higher costs.
A similar fate would await payments infrastructure.
The issue also seems to have divided the industry.
While Paytm Founder and CEO Vijay Shekhar Sharma is reported to have come out in support of zero MDR, Antony said that this is not the view of the industry body PCI.
Paytm did not respond to an email sent by BusinessLine.
Significantly, the Nandan Nilekani committee on deepening of digital payments had suggested that the Reserve Bank of India should let the market compete on MDR, which would ultimately grow the acceptance ecosystem.
The Centre already subsidises the MDR for transactions done using debit cards, BHIM UPI and BHIM Aadhaar Pay up to ₹2,000.
Most bankers say it is only the large acquiring banks who will be impacted and will have to pay MDR charges.
Manish Patel, Founder and CEO, Mswipe, said it is an ongoing debate between the industry and the government on the costs.
“This is an industry issue. It does not bother us at all, we are an acquirer.”
The PCI had last week raised concerns about the proposed move and had said it will lead to collapse of the payments acquiring industry.