The government’s move to abolish merchant discount rate (MDR) seemed to created an uneasiness among payment ecosystem stakeholder. After banks and payment firms, now the payment council of India has come out against the move.
The industry body of payment has in a cautionary note said that to mandate zero charges on digital transactions will hurt the payments firms and could affect acquiring new merchants.
It further suggested that the govt should rather create a means for bearing the cost of MDR thereby ensuring that the payments business remains viable instead of abolishing MDR.
The move is said to affect companies which help banks process card transactions and manage the merchant relationships. It will lead to shut down of intermediaries in the digital payment space, said Loney Antony, vice-chairman at Hitachi Payments to ET.
The abolition of MDR negatively impacting payment ecosystem and might lead to single-digit growth added the report further quoting Deepak Chandnani, chief executive officer (South Asia & Middle East) of payments intermediary Wordline.
The Council has also added that it has in past too suggested govt to adopt a market-driven MDR approach in place of mandating price regime.
On last Friday, while presenting budget Finance Minister Nirmala Sitharaman had declared that there should be no charge or merchant discount rate (MDR) for companies with more than Rs 50 crore turnover accepting payments through digital means.
No bank or system provider shall impose any charge upon anyone, either directly or indirectly, for using the modes of electronic payment prescribed under section 269SU of the Income-tax Act, said the budget 2019 memorandum.
The move also put banks and payment firms in a fix, who are reported to earn part of their revenue through it. As per banks affected by the decision, it might affect the digital payments growth in the long run and will hurt payment firms including banks and merchant onboarding on them.
Currently, merchants bear the cost of MDR that is around Rs 12-15 per transaction and the government doesn’t levy charges on transaction up to Rs 2,000 via debit cards, BHIM, and other UPI-enabled payments apps.
The decision was hailed by Industry observers who said that it will lead to the growth of UPI payments at retail stores.