Government proposal to abolish all charges levied on merchants or customers to promote digital payments has not gone down well with banks and payments firms, who earn a good part of their revenue through it.
As per banks and payment firms, the decision might affect the digital payments growth in the long run. It will hurt payment firms including banks and merchant onboard on them, said a private bank, on condition of anonymity, involved in these transactions.
Currently, Merchants pay a fee to these banks such as HDFC, SBI, ICICI, who serve as lenders to them for providing digital payment facilities.
It is known as merchant discount rate (MDR). The charge is said to be made in the PSS Act. Even the RBI would not be able to do anything in regards to the move, said an ET report quoting payment processing firm.
The move, which aims to push organised retail, is also said to affect card networks like Visa and Mastercard. Though, the finer details regarding it are still evaluated that how it will affect charges on debit card payments.
On July 5, Finance Minister Nirmala Sitharaman presenting union budget has announced 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.
“It is proposed to make a consequential amendment in the Payment and Settlement Systems Act, 2007, so as to provide that 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,” read out the budget 2019 memorandum.
At the same time, the govt has also mandated the installation of UPI payments and QR codes at organised retail.
At present, 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.
For the uninitiated, MDR is a charge levied for facilitating a digital transaction and is generally distributed among various parties.
Meanwhile, the decision was hailed by Industry observers say that it will lead to the growth of UPI payments at retail stores. The new structure would encourage offline merchants to embrace plastic as well as UPI-based transactions.