With banks forced to bear processing charges on RuPay cards, they were more likely to issue Mastercard and Visa cards
The government's decision to scrap the processing charges on RuPay debit cards could see fewer cards being issued since it puts the card scheme at a disadvantage against other two global players operating in India, Visa and Mastercard, two bankers have said.
While government-owned banks could still be forced to issue RuPay cards, private banks could move out of the scheme and issue more of Mastercard and Visa cards, the bankers, who didn't wish to be identified, said.
The move to do away with the merchant discount rate (MDR) could also hamper the growing adoption of RuPay cards for merchant payments, they warned.
"We will have to bear the cost of processing these card swipes, while there will be no money to be made per transaction, banks will have to rethink their strategy on giving out RuPay cards," said a senior banker with a private sector lender on condition of anonymity.
Along with Rupay cards, Unified Payments Interface (UPI) transactions, too, has been made free from January 1.
India has three major card schemes - National Payments Corporation of India (NPCI)-run RuPay, Visa and Mastercard. There are over 843 million debit cards in the market.
The latest numbers shared by the Payments Council of India (PCI), the industry body for payment companies, show there are around 500 million RuPay debit cards in circulation. A large number of these are Jan Dhan cards.
"Banks have been issuing these cards because of the preferable pricing, but now with no money to be made per transaction, they could move back to issuing other card schemes where at least the MDR is applicable," said another banker in the know of the matter.
"Also, there is doubt whether NPCI will reduce its charges on settling the transactions."
At the time of publication, NPCI had not responded to Moneycontrol's request for comments.
Sources said zero-MDR order will hurt banks, as they stood to lose Rs 2,000 crore in revenue per year. MDR is the fee that the banks get from merchants for processing these transactions.
It will be a double-hit for the banks - one the government will no longer reimburse MDR for a debit-card transaction of less than Rs 2,000 and second there is no MDR on Rupay debit cards.
"For all RuPay debit card transactions, the MDR amount for last year was more than Rs 1,000 crore and was expected to grow to Rs 1,300 crore in this year," said a top banker. "Including UPI, the amount would easily cross Rs 2,000 crore."
According to the Reserve Bank of India numbers, the share of RuPay cards in transactions has been growing steadily. From around 11.7% in the financial year 2016-17, the share of RuPay cards for merchant payments both offline and online has grown close to 30%.
Till October 2019, around 3 billion debit card swipes were reported, of which around 700 million were RuPay card swipes. This number was only 282 million in 2016-17."There were multiple offers being run on RuPay cards, which helped push its adoption at merchant locations. Now that rapid growth could halt and the share could even fall," said one of the bankers quoted above.