To promote digital transaction via low-cost digital payments modes such as BHIM UPI, UPI-QR Code, Aadhaar Pay, Debit cards, NEFT, RTGS, the government has proposed to abolish all charges levied on merchants or customers who perform transactions through these modes.
Presenting Union Budget 2019, Finance Minister Nirmala Sitharaman 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.
For the uninitiated, MDR is a charge levied for facilitating a digital transaction and is generally distributed among various parties. Currently, merchants bear the cost of MDR that is around Rs 12-15 per transaction.
As of now, the government doesn’t levy charges on transaction up to Rs 2,000 via debit cards, BHIM and other UPI-enabled payments apps.
This is a much-needed step amidst the steep rise in UPI-based merchant payments in the last three months. Industry experts believe that this will push customers to make payments through UPI at organised retail outlets instead of debit or credit cards.
A win-win situation for PGs and switching network businesses?
In the current structure, MDR is shared amongst payment gateways, issuing and acquiring banks and switching networks like Mastercard and Visa. In light of the new structure, payment gateway and switching networks will have smooth sailing.
Since they would be paid by RBI and banks, they don’t require to negotiate individually with merchants. They are likely to get a flat rate anywhere between MDR of 0.4% of bill value (for the smaller merchant) and 0.9% (for larger merchants).
Although we are not sure, it looks like issuing and acquirer bank involved in the transaction will waive off their commission.
The new structure would encourage offline merchants to embrace plastic as well as UPI-based transactions.
The decision to subsidise MDR rate has come as a blessing in disguise for Paytm as it continued to waive off any convenience/transaction fee from customers on using any payment method like debit-credit cards, UPI, net-banking, and wallet.