Two days after the Payment Council of India (PCI) wrote a letter to to Prime Minister Narendra Modi recommending merchant discount rate (MDR) on UPI as well as Rupay debit cards, another industry body --Startup Policy Forum (SPF)-- has made a strong case for ensuring that smaller fintech players have room to grow in a sector increasingly dominated by a handful of large firms.
"India’s digital payments landscape also needs to leverage competition to ensure a more evenly distributed and balanced ecosystem, where smaller players have room for growth," SPF said in a statement on March 26, underscoring the need for policy interventions to prevent market consolidation in the hands of a few large firms.
The push comes at a time when the debate around MDR has gained fresh momentum.
Recently, Payments Council of India (PCI) wrote to Prime Minister Narendra Modi, advocating for MDR on UPI transactions but also for Rupay debit cards.
"We believe this policy reform will be a gamechanger as it will empower the next 500 million Indians by enabling their participation in India’s digital payment ecosystem," SPF said, emphasising the potential for further financial inclusion through a more sustainable revenue model for payment companies.
The forum argued that many payment companies, which played a "stellar role as harbingers of this digital payments revolution," require a revenue model that allows them to continue investing in innovation and security.
Crucially, SPF has advocated for a two-tiered MDR model, distinguishing between large and small merchants. "In a nation as diversified as India, growth imperatives have to be balanced with inclusion. The two-tiered model of MDR ensures this balance by exempting small merchants from the proposed MDR framework and preserving the extant zero MDR framework for them," the forum stated. This, it argued, would protect smaller businesses while ensuring that digital payments continue to scale.
"This distinction will also ensure the long-tail of small-value merchants have adequate impetus to ramp up and experience digital payments acceptance, ensuring UPI witnesses the next wave of growth," SPF added, highlighting the role of small merchants in the ecosystem.
Beyond MDR, SPF also stressed the importance of fostering a competitive and diverse payments industry.
"While the proposed MDR framework meets the objective of growth, equity, and inclusion, India’s digital payments landscape also needs to leverage competition to ensure a more evenly distributed and balanced ecosystem," the forum stated. It emphasised that smaller fintech players need regulatory support to compete with larger incumbents, ensuring that the sector remains dynamic and innovative.
SPF’s backing of the proposal aligns with a growing industry sentiment that the current zero MDR regime—while beneficial for adoption in the early years—now needs a re-evaluation to ensure the sector remains viable.
However, PCI’s recent move sparked controversy within the fintech community, with some of its members privately expressing disappointment over not being consulted before the council directly reached out to the Prime Minister. These founders, who requested anonymity due to the sensitivity of the issue, told Moneycontrol that they were caught off guard by PCI’s approach.
Both the industry bodies share several common members from the payments segment, including BharatPe, Cred, Jupiter, Pine Labs, Razorpay and Mobikwik.
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