Payments industry reiterates demand for a stable MDR regime

Representative Image (REUTERS/Danish Siddiqui)

The digital payments industry reiterated its demand for a minimum merchant discount rate (MDR) regime and requested the intervention of the Reserve Bank of India to resolve the contentious matter.

In a panel discussion chaired by Naveen Surya, chairman, Fintech Convergence Council, an industry body, and attended by Dilip Asbe, chief executive at National Payments Corporation of India (NPCI), TR Ramachandran, country head, Visa for India and South Asia, along with P Vasudevan, chief general manager at the RBI, the issue cropped up again. In a conversation between Sameer Nigam, cofounder of PhonePe, and Amitabh Kant, CEO, NITI Aayog, the issue was again highlighted.

MDR is the price paid by merchants to banks and payment processors for every digital transaction that is processed.

Asbe said while the Payments Infrastructure Development Fund (PIDF) was helpful if the country intended to grow at five to ten times in digital payments volumes, then the amount was not sufficient and the need was to have a stable MDR regime.

“This fund helps the acquiring entities service the merchants, ensure technology support, diligently do a KYC, at least a 20 to 25 basis points MDR is necessary for that,” Asbe said.

Visa’s Ramachandran also said being woefully short of payment terminals, India needed to reward innovations and the risk-taking abilities of acquirers. Brazil had 65 million PoS terminals compared to a 5 million physical and 20 million digital PoS in India, he said.

“If payments is a common good for the public, like water, electricity and others, someone needs to pick up the tab, there should be some skin in the game for secure connectivity and other features,” he said.

Nigam highlighted similar challenges, saying that early stage payment companies are finding their business becoming unviable given there is no money to be made in core payments. “Many early stage entrepreneurs are moving into business-to-business payments to keep their venture going at a time when they should have razor sharp focus on solving consumer payments.”

The digital payments ecosystem was rattled in 2019 when the finance minister announced that the MDR on payment modes like RuPay and UPI, both developed by NPCI would be taken to zero.

While there were multiple debates, the government went ahead with its zero MDR regime from January 1 2020.

To support merchant acquisition, the Reserve Bank of India created a Rs 500-crore PIDF. While the industry welcomed the initiative, they said Rs 500 crore was less than what was needed.

If the government wanted to support the current growth rates, close to a billion-dollar fund was needed to support merchant acquisition, Asbe said.

Accepting the industry view and its concerns, Vasudevan said PIDF would help as of now and the central bank would keep an eye out for developments in this space and act in consultation with the industry.

Kant in his response to Nigam was more forthcoming and said the government was ready to hear out the industry regarding the MDR issue. He added that the answer might not be zero MDR or high MDR, but there could a middle way.