Paytm slams reports of levying MDR fee: How long can it afford to do so?

Digital payments company Paytm has denied reports that there would be a convenience fee charged on online transactions made on the platform and its customers will continue using all the services available without any additional charges.

According to the company, it doesn’t levy any convenience/transaction fee from customers on using any payment method which includes debit-credit cards, UPI, net-banking, and wallet. 

Earlier today, an ET report said that the digital wallet and payment company is working towards reducing its burn rate and will no longer absorb the MDR (Merchant Discount Rate) charged by banks. The report claimed that users will have to shell out 1% on payments made through credit cards while debit cardholders require to pay 0.9% of the transacted amount.

Payments executed via net banking and the Unified Payments Interface (UPI) will cost between Rs 12 to 15, as per the report.

It’s worth noting that the Alibaba-backed company has been absorbing the MDR on all online transactions as an operating expense ever since its inception. Contrary to media reports, it will continue to do so without any changes.

The company also explained that some merchants such as educational institutions and utility providers have refused to absorb credit card charges resulting in additional fees that the customers can avoid by paying through their debit cards and UPI as per the company’s recommendations. 

Soon after the report of Paytm charging MDR rate, there has been a backlash on micro-blogging platform Twitter.  Many users have reiterated that after subsidizing the MDR fee Paytm achieved scale, and now it wants to charge the same from customers. 

While Paytm has decided not to charge MDR rate in the near future, it won’t last forever. This is because any business can’t subsidize or bear charges levied by the banks on users’ behalf. After all, every business has to breakeven, even if not today or tomorrow but a couple of years down the line.

Importantly, its backers Alibaba, SoftBank and others also have concerns regarding profitability. They reportedly have been exerting pressure on the company for turning towards a sustainable path.

Over the past 12-18 months, Paytm has been facing stiff competition from Google Pay and PhonePe in the UPI ecosystem and it doesn't want users to find a reason to switch apps. However, it would be interesting to observe how long Paytm continues to subsidize the MDR rate.