Payments industry body warns scrapping MDR will kill them

The budget proposal to remove the merchant discount rate (MDR) will lead to the "collapse" of the payments acquiring industry, a lobby grouping has warned.

The move is contrary to various studies, including the Reserve Bank's vision document released not so long ago, the Payments Council of India said in a statement July 8.

Currently, there is a provision to get a merchant discount rate of up to 2 percent on every digital transaction, which helps the intermediaries recover the cost of setting up the infrastructure.

The body's emeritus chairman Naveen Surya said only 10 percent of Indians currently use digital payments and the move comes at a time when there is a need for more players to enter the segment and invest so that this service is widened.

"The announcement of the industry bearing the MDR will lead to the whole digital payment industry without any business and revenue model," he warned.

"With banks being asked to bear the burden of zero MDR, their acquiring business profitability will be impacted. Further, it is likely that banks, in turn will try to recover some of this from their fintech partners, thus negatively impacting all the ecosystem players who are key to drive the much-needed growth of the acceptance/acquiring ecosystem," Worldline chief executive for South Asia and Middle East Deepak Chandnani said.

Hitachi Payments India vice-chairman Loney Antony, who is also co-chairs the PCI, warned that the move can further bring down the usage of digital payment alternatives to single-digits again from 12 percent now. It had tocuhed a high of 14 percent soon after the note-ban and has since then been coming down.

Infibeam Avenues' Vishwas Patel, who also chairs PCI, said the MDR in the country is the lowest in the world and asked the government to simplify taxation side which is the biggest hindrance for traders from adopting digital payments.

"MDR if not charged to the customers and merchants, it should be borne by the government," the PCI statement said.

It also said there are a few positives in the budget like compulsory usage of various digital payment options by all merchants above Rs 50 crore turnover and penalty mechanism in case of not using it.