RBI should ensure fair MDR share: Digital Payment firms

While the Reserve Bank of India’s latest guidelines on merchant discount rates (MDR) have brought some respite to the digital payments industry, many payment executives ET spoke to feel that the central bank needs to ensure equitable distribution of MDR between the various participants of digital transactions.
 
MDR is the amount paid by a merchant for a digital transaction and it is shared by multiple parties –– the bank which issues the card, the acquiring bank which onboards the merchant, the network companies who process the transactions and the players who deploy the payment solution.
 
As of now, the share of MDR is higher for the issuing entity while the acquiring company gets a much smaller share. Further, with the new rates from the regulator, payment companies fear their margins could be under further stress.
 
“While the maximum cap on MDR has been decided by the RBI, what needs to be done is that the ratio of split between the acquiring company and the issuing entity needs to be decided in such a way that there is a balance and the terminal deployers can make some money from the business,” said MN Srinivasu, co-founder of Billdesk, one of the largest payment gateway companies in the country.
 
“The financial model for entities who deploy the payment terminals is very tight. In some cases less than 0.1%. This hampers the development of payments in smaller cities,” said Amrish Rau, MD of digital payment company PayU India.
 
Vishwas Patel, the founder of payment gateway company CCAvenue, said the country already has more than 800 million debit cards. What it needs now is many more terminals and for that to happen the lopsided fee structure for issuers need to be made equitable.
On Wednesday, RBI said that for merchants with an annual turnover of less than Rs 20 lakh, MDR is 0.4% and for those above Rs 20 lakh the rate is 0.9%. But payment executives feel that this form of MDR classification makes calculations a bit cumbersome and throws technological challenges. Although it will be smooth for newer merchants, it would be a huge challenge for older ones to classify them, they say.
 
“For the entire payments ecosystem, a massive migration needs to happen since historically card networks have never categorised merchants in this manner, it is bound to lead to operational challenges,” said Srinivasu from Billdesk.
 
“I believe the Rs 20 lakh-slab is too low. Many merchants in the Rs 30-40 lakh category started adopting digital transactions only recently and they were showing good traction. But now, with a higher MDR, they might resist card payments,” said Rajeev Agrawal, chief executive of Innoviti Payments which deploys PoS terminals for banks at merchant outlets.
 
Rau from PayU said a lion’s share of their merchants selling goods online generate revenue of more than Rs 20 lakh. Hence, all of them would get clubbed into the higher MDR slab.
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