Non-bank payment service providers (PSPs) have asked the government to bear the cost of digital payment as they are staring at a shutdown in the wake of the Budget proposal of zero MDR (merchant discount rate).
The Finance Bill stated that in Payment and Settlement Systems Act, an additional section will be inserted with effect from November 1, which will read: Notwithstanding anything contained in this Act, no bank or system provider shall impose any charge upon anyone, either directly or indirectly, for using the electronic modes of payment prescribed under Section 269SU of Income-tax Act, 1961. MDR is a fee charged from a merchant by a bank for accepting payments from customers through credit and debit cards in their establishments.
Loney Antony, vice- chairman, Hitachi Payments said, non-bank payment service providers (PSPs) like aggregators/ processors are a significant part of the ecosystem. If there is no commercial model, they will be forced to shut down. Banks may have multiple ways to recover money from the merchants, but non-bank players do not have any other avenue than the MDR. These PSPs are employing at least over a several lakh jobs, and in the absence of revenue, there will be survival issues and the industry will eventually collapse.
According to the Payment Council of India (PCI), this announcement will deflate the hard work done by the acquiring industry and MDR if not charged to the customers and merchants, should be borne by the government. This will help the acquirers to focus and invest in the expansion of the acquiring infrastructure. Digital payments and fintech are high growth areas and with right policies and support, they can work towards the acceleration of adoption of digital payments.
Vishwas Patel, chairman, PCI, Indian MDR is one of the lowest across the globe even when monthly retail digital payments volumes are negligible at $ 250 billion (approximately). The real issue for merchants to accept digital payments is the avoidance of tax and requires urgent simplifying of tax both GST and income tax. International benchmarking should be done before such policies are implemented. It is well established that in any growing economy for the payments infrastructure to grow, we need the policies that are acquirer friendly which can attract capital.
Payment providers say multiple digital payments reports over decades have never recommended zero MDR. Some of the recent reports of the Committee for Deepening of Digital Payments Chaired by Nandan Nilekani and Framework for digital payments Chaired by Ratan Watal did not propose zero MDR. All had recommended market-based pricing with support and focus to drive merchant acquiring. The recent RBI Vision 19-21 document also recommends creating some additional efficiency wherever possible in costs, and not eliminating the MDR, PCI said.
Industry officials said the zero MDR for all merchants, with cost to be borne by the RBI and bank comes as a surprise, which has not gone down well with and appreciated by the payments industry.
Deepak Chandnani, CEO, South Asia & ME, Worldline, said, with the banks being asked to bear burden of zero MDR, their acquiring business profitability will be impacted. Further it is likely that banks would in turn try to recover some of this from their non-bank Fintech partners, thus negatively impacting all eco-system players, which are key to driving much needed growth of the acceptance/acquiring eco-system.
Digital payments grew from 6 per cent of GDP to 14 per cent and now slipped to 12 per cent. Cash is also 12 per cent of GDP. We have not made any progress on this front and if this trend continues, we will go back to single-digit very soon, he said.
Naveen Surya, chairman, FCC, said, considering digital payment in retail is little more than just 10 per cent, we have miles to go and need many more players to be willing to invest and work to provide these services. This announcement of industry bearing MDR would lead to the whole digital payment industry without any business and revenue model. The charge of 2 per cent TDS on cash above Rs 1 crore received by the bank, would not be sufficient for the larger eco-system to be rewarded for their efforts.
Digital payments have received high interest from various investors. Private equity and strategic investors are looking for consistency and principle-based policies to invest in this market. Knee jerk policy changes like this are likely to spook such investors and will not be in favour of the government in attracting foreign capital, PCI said. As per providers, the investors are already managing some existing policies with great difficulty for example, compulsory full KYC even for Rs 1 transaction and no access to UIDAI/ Aadhaar for KYC, higher cash in circulation and easier norms to deal in cash versus digital.