The Ministry of Electronics and Information Technology (MEITY) is considering reimbursing the merchant discount rate (MDR) for payment companies providing the Unified Payments Interface (UPI) service, Mint reported. The Ministry, in consultation with industry players, is working on modeling the costs incurred by payment companies and the funds it would require to reintroduce MDR on UPI and RuPay payments.
MDR is the fee paid to banks and payment service providers by merchants, typically around 1.5-2% the transaction value. From January 1, 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 Merchant Discount Rate (MDR) on either customers or merchants.
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)
Citing three unnamed sources, the report says that the Ministry wishes to absorb the costs and that it hopes to introduce this reimbursement policy in the upcoming Union Budget, which would be worth more than ₹1,000 crores in value. According to Mint, the MEITY was in talks with payment companies to devise a scheme to incentivise UPI payments by looking at retail data points that can be digitised. The ministry wold then absorb the costs incurred to set up payments acceptance points in these areas. However, this policy idea is no longer being pursued, it said.