The government is making several efforts to turn India into a digital-first economy. One of them is announcing that from 1st February, 2020 all shops and business establishments, with over INR 50 crore turnover, should provide digital payment facilities to customers. Failure to do this will attract a whopping INR 5000 fine per day under a section of the Finance Act.
The Finance Ministry has also declared that shops should facilitate payment through the indigenous RuPay debit cards, UPI-based payment solutions like BHIM app as well as UPI QR Code. It has also decided to waive off the merchant discount rate (MDR) charges on transactions done via UPI and RuPay.
Fintech players are divided on how this move will impact the business. According to Dewang Neralla, CEO, Atom Technologies, many payment service providers and acquiring banks depend on MDR as their only revenue source. “This definitely affects their revenue and ability to invest to grow the market further, unless they have deep pockets.”
Another player, who preferred to be anonymous, wanted to know who will reimburse banks and acquiring companies for the MDR. “MDR’s removal is a loss for these entities and it is unclear who will bear this loss. While the government is making a push for digital payments, it also appears that this move is to recover more tax by ensuring better transparency of business transactions,” he noted.
Others are taking an optimistic view of this transition. Ankit Patel, a fintech consultant, pointed out that it will strengthen adoption of digital payments in urban and rural India. “This, in turn, will lead to increased flow of funds and private equity investments into these companies,” he opined. US-based Mastercard’s recent funding of around INR 1000 crore in Noida’s payment solutions provider, Pine Labs, gives strength to this conjecture. Pine Labs said that they will jointly offer a suite of value-added services, including the former’s end-to-end stored value solutions to replace the paper ones widely used by companies and retailers.
However, will India's SME retail segment make this shift to a cashless economy? Arvind Pathare, a retail expert, stated that since demonetisation, the cost of accepting digital payments has gradually come down.
“To counter the threat from online players and become more competitive, merchants are offering electronic payment options. Rather than penalising them, the government should incentivise them to accept digital payments, irrespective of their turnover,” he suggested. This is especially for SME players, as those with over INR 50 crore turnover would already have provisions for digital payments.
While a push for a digital economy is needed, experts suggested a parallel thrust for network connectivity, especially in rural towns. Since they are symbiotic functions, one can only survive if the other prevails.