Zero MDR had a negative impact on payments ecosystem: RBI

The Reserve Bank of India, which had set up a committee to study the use of Quick Response (QR) codes to process contactless transactions, is now placed for public comment. RBI constituted the Committee on December 23, 2019 under the Chairmanship of D.B. Phatak, Professor Emeritus, IIT-Bombay.

As per the report of the committee on the analysis of QR Code published by RBI, the apex banking body has asked for comments and suggestions on the report from all stakeholders and members of public before August 10, 2020.

The committee mainly setup for the adoption of QR Code payments, has discussed various aspects of the digital payment system such as interoperability, scalability, innovation, awareness, privacy and security. 

One of the most critical recommendations by RBI was allowing a lower fee instead of zero MDR, which was imposed by the government in December 2019. "The government should allow a lower controlled interchange instead of zero MDR on QR code, UPI and RuPay debit card transactions, as well as give tax incentives to merchants who accept electronic transactions and promote incentive schemes to improve popularity of QR code-based transactions," mentioned the report.

The RBI has highlighted that opting for zero MDR by the government had a negative impact on the payment ecosystem that is impacting the survival of payment gateway entities, hampering innovation efforts and resulting in job losses and a slowdown in the expansion of the digital payment infrastructure in India. The impact was maximum for the SME sector, and several jobs are directly or indirectly disappearing as there are no incentives or incomes for deploying QR codes.

Extending his support in favour of MDR,  NPCI’s MD & CEO Dilip Asbe said that MDR is necessary because it funds the acceptance, servicing and acquiring infrastructure for UPI. “We are trying to get MDR back," he said at the Global Fintech Festival 2020.

If the government rethinks its decision over zero MDR then it would be a pivotal decision for the merchants and consumers. As per the RBI data, over 20 million UPI QRs have been deployed in the market and the volume of digital payments using UPI QR are approximately over 250 million on a monthly basis.

Besides the government, RBI has also notified its role in the adoption of QR Code payments where it can provide a clear plan to phase out proprietary, closed-loop QR codes in favour of open, interoperable standards.