MDR policy to stay and no compensation to payment firms on losses: FM

In what could be a big jolt to the digital payment industry, Finance Minister Nirmala Sitharaman has said that zero merchant discount rate (MDR) policy will stay and the government would not compensate payment firms on losses from waiving off the transaction charges. 

The FM said this to a delegation of the digital payment industry, who appealed for government's rethink over the zero MDR policy.  

However, she assured that the amount saved by banks on handling less cash would have to be used for acquiring a business, said an ET report quoting Payment Council of India (PCI) chairman Vishwas Patel as saying.

The six-member delegation which met the FM included Vishwas Patel, Paytm CEO Vijay Shekhar Sharma, PhonePe Founder Sameer Nigam, Ajay Kaushal, director of Billdesk; Loney Antony, vice-chairman of Hitachi Payments; and Gaurav Chopra, the executive director of PCI.

The pre-budget meeting took place after the FM had announced the exemption of MDR charges on transactions done via UPI and RuPay payment modes on December 30.

For the unknown, MDR is the cost paid by a merchant to a bank for accepting payment from their customers via digital means. At present, merchants bear the fee of MDR that is around Rs 12-15 per transaction.

Earlier in July last year, the FM had first proposed the abolition of MDR, which was followed by a notification from the department of revenue in December.

In October, the Central Board of Direct Taxes (CBDT) brought in a new section named ‘ 269SU’ which says that every person having business with a turnover exceeding Rs 50 crore shall mandatorily provide cashless payments facility through prescribed electronic modes. 

However, the move faced criticism from banks and payment firms. The Payment Council of India (PCI) was critical of the decision saying that the government proposal will lead to the whole digital payment industry left without a business or revenue model.

That apart, the payment industry stakeholders had also cautioned that zero charges on digital transactions will hurt the payments firms and could affect acquiring new merchants.