Fissures appear in Payments Council on letter to PM Modi on MDR without consultation

Differences in PCI over letter to PM on MDR issue

Cracks appeared after the payments industry body the Payments Council of India wrote to Prime Minister Narendra Modi on March 24,  recommending merchant discount rate (MDR) on UPI as well as Rupay debit cards.

Some fintech founders, who are members of PCI, told Moneycontol that they were disappointed with the PCI for not discussing the MDR strategy with them before approaching the PM directly and publicly. They did not wish to be named citing the sensitivity of the issue.

“While we all support the implementation of MDR, the decision to approach PM was taken by a few members and chairman without consulting with the full governing council or the members independently,” said a founder requesting anonymity.

According to the letter sent to PM, 180 companies support the recommendation. In its letter to Modi, PCI requesting 0.3 percent MDR on UPI. The move came a few days after the government announced a Rs 1,500 crore subsidy for the current fiscal against an expectation of more than Rs 5,000 crore.

MDR is the fee that banks collect from merchants at the point of sale for facilitating digital payments. UPI MDR was 30 basis points before it was waived off by the government in 2020. One basis point is one-hundredth of a percentage point.

“Our disappointment or differences is not on the issue of MDR but the approach that a few members have taken. MDR has been a politically sensitive issue and an aggressive public posturing might turn out to be counterproductive,” a chief executive with a payment gateway firm said.

PCI chairman Vishwas Patel did not offer comments on differences within the organisation on the strategy to press the government publicly for implementing MDR on UPI.

A third fintech founder said the industry has been taking up the MDR issue with the finance ministry, the central bank and others over the past year or so discreetly.

“Many of us think that a discreet strategy works better with the government. Moreover, the government was increasingly receptive to our demand in the recent meetings,” the founder said.

Merchant payments are over thrice those of credit card spending in the country every month. The average ticket size though is much smaller, creating stress in the banking system that has to process around 17 billion transactions a month. Hence, everyone in the ecosystem is looking for ways to monetise the payments system enough to cover the cost.

“The introduction of nominal MDR for RuPay Debit cards and UPI (for large merchants) would not result in any operational disruption, even in the short term, as these merchants were already accustomed to MDR on other payment modes,” the PCI letter said.

Multiple bankers and payment executives see the lower subsidy as an indication that the government is likely to let the industry charge a fee for UPI payments in the next financial year.

“This year’s UPI subsidy is limited to transactions done at small merchants. This means that merchant discount rate or MDR on UPI for large merchants is likely to be implemented within the next couple of months,” a senior banker with a private sector bank told Moneycontrol.