MDR waiver impact? After RuPay, Paytm Bank to now issue virtual Visa debit card

Paytm Payments Bank has announced that it will now start issuing virtual Visa debit cards to its customers. Using such cards, the bank’s customers will be able to transact at all merchants in India and perform international transactions.

Soon, the customers will also have an option to request for a physical card, the company said in a statement.

Paytm Bank, which is one of the seven operational payment banks licensed by the Reserve Bank of India, aims to issue over 10 million new digital debit cards in FY21. Till date, Paytm claims to have issued more than 57 million digital debit cards.

Interestingly, Paytm Bank was only issuing RuPay debit cards until now.

The move to issue virtual Visa debit cards comes after Finance Minister Nirmala Sitharaman waived off merchant discount rate (MDR) charges, in effect from Jan 1, 2020, on transactions through RuPay debit cards.

MDR is the cost paid by a merchant to a bank for accepting payment from their customers via digital means.

Zero MDR fee has added to losses for RuPay issuers. "The abolition of merchant fee has added additional burden in terms of promotional cost on card issuers," said a private bank official to Entrackr.

Paytm founder and CEO Vijay Shekhar Sharma, who owns 51% stake in PPBL, had also supported the abolition of MDR.

"Paytm’s model is built on zero MDR policy giving merchants an opportunity to sell online. India’s acceptance of digital payment modes will accelerate with this kind of change on more payments options," Sharma had said in July last year.

In response to a query to Paytm Bank on why it is moving to issue virtual Visa cards if zero MDR fee had no impact on them, a spokesperson said that they were still the largest issuer of RuPay platinum debit cards in India and continue to be associated with NPCI to support the RuPay program.

"We have been in discussion with Visa since May last year for issuing debit cards, whereas the issue of Zero MDR was notified only in December 2019. As India's largest payments bank, we aim to to provide maximum options & flexibility to our users," the spokesperson told Entrackr.