The Indian Banks’ Association (IBA) and payments industry bodies have met with officials from the Ministry of Finance and the Ministry of Electronics and IT (MEITY), in a bid to re-introduce the merchant discount rate (MDR) on the Unified Payments Interface (UPI) and RuPay card network, the Economic Times reported.
MDR is the fee paid to banks and payment service providers by merchants, typically around 1.5-2% the transaction value. From January 1, 2020 the government decided that businesses would not levy a MDR on merchants on customers and offer low cost digital payment options to customers. The Finance Minister had earlier said that starting January 1, 2020, businesses with annual turnover of more than ₹50 crore will have to offer low cost digital payment options to customers, without levying any MDR on either customers or merchants.
Citing three unnamed sources, the report says that the government’s decision to revoke MDR last year has impacted its financial inclusion agenda. Though the adoption of digital payments has grown manifold in the last few months in the wake of the COVID-19 pandemic, banks are unable to cope with the rise in transaction volumes as a result of which transaction failure rates on UPI has been growing.
As part of pre-Budget consultations with the government, the banking and payments industry bodies have proposed a discounted MDR for RuPay cards transactions which will be on par with the transaction charges levied by banks on card networks like Visa and Mastercard. Further, it has proposed a flat slab-based MDR on UPI transactions, which is different from the ticket-size based MDR regime that existed earlier, the report says.
While payment companies have to pay to acquire merchants and customers, build products and systems that can hand, the Zero MDR policy effectively took away their primary revenue source. On UPI, they have to pay a switching fee to the National Payments Corporation of India (NPCI), while on RuPay banks incur a cost in terms of issuing the card and paying a fee to NPCI as it owns the network.
While the Finance Ministry is the ultimate decision making authority for re-introducing MDR, MEITY is reportedly looking at an alternative solution in the form of a reimbursement scheme which cost the government ₹1,000 crore.
However, in a statement to Mint, the government has denied it would re-introduce MDR in the upcoming Union Budget.
“The ministry of electronics and information technology (MeitY), government of India, being the nodal ministry for the promotion of digital payments, is constantly working with all the stakeholders to increase the penetration of digital payments in the country. Presently, MeitY is not considering any proposal with respect to reimbursement of MDR. Also, no recommendation has been sent to the ministry of finance,” MEITY statement to Mint