The Business Standard reports that banks are not paying payment companies their due of government-subsidized Merchant Discount Rate revenue (MDR). The report cites multiple banks and payment companies being stuck at processing the paperwork to actually get the subsidy out of the government. The subsidy only waives off responsibility from the merchants — the payment companies and banks still need to get paid. And that isn’t happening, the report says. Payment companies like Pine Labs, CCAvenue and BillDesk, which actually do the heavy-lifting of acquiring merchants and providing them support, are most likely affected. However, the report doesn’t name any of these companies directly.
The Business Standard has estimated that around ₹500–600 crores are stuck at various processing stages, while payment companies struggle without a major source of revenue for an extended period of time. An SBI spokesperson told BS that they hadn’t even received the subsidy yet to give it to payment companies. An Axis Bank spokesperson said the same thing, adding, “The bank is constantly engaging with all stakeholders to ensure government subventions are promptly passed on.”
Two year MDR subsidy
In December last year, the Indian government started a scheme to make digital payments easier to accept. Under a two-year subsidy program, merchants would not have to pay a slice of debit card and UPI revenue to the banks who settle those payments. This waiver applied to transactions below ₹2000. That slice, the Merchant Discount Rate, is charged at around 0.4% per transaction, which for ₹2,000 is ₹8. While this may not seem like much, margins in retail are thin enough to discourage merchants from swiping debit cards for low-value transactions. This is why the two-year subsidy window was important. If the BS report is to be believed, though, the companies in charge of these transactions, as well as the banks, are facing huge delays in actually getting that money from the government.
The sheer amount of paperwork that seems to have not been processed, especially when all transactions are digital and recorded in a standardized format, calls into question the government’s design as well as the implementation of this scheme. Even automatic disbursal of subsidy to banks as soon as individual payments were settled would not have been the hardest thing to pull off in the digital payments industry. Months-long processes for subsidizing digital payments is not consistent with the spirit of encouraging a cashless wave in digital payments, especially when the companies — and banks — at the forefront of that wave are robbed of incentive to support it.