Raising concerns over the zero merchant discount rates (MDRs) the Payments Council of India (PCI), which represents more than 100 players in the payments and settlement systems, says this move will lead to a collapse of payment acquiring industry.
Vishwas Patel, chairman, PCI, and Director- Infibeam Avenues said, "Indian MDR is one of the lowest across the globe even when monthly retail digital payments volumes are negligible at about $250 billion. The real issue for merchants to accept digital payments is the avoidance of tax and requires urgent simplifying of tax both goods and services tax (GST) and income tax (I-T). 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."
With the banks being asked to bear the burden of Zero MDR, their acquiring business profitability will be impacted, feels Deepak Chandnani, chief executive (CEO) for South Asia and Middle-East at Worldline. Further, he says, 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 and acquiring eco-system."
While compulsory usage of various digital payment options by all merchants above Rs50 crore turnover and penalty mechanism in case the same are not offered is a positive move, the zero MDR for all merchants, with cost to be borne by the Reserve Bank of India (RBI) and banks comes as a surprise, which has not gone well with and appreciated by the payments industry.
According to Loney Antony, co-chairman of PCI and vice-chairman of Hitachi Payments non-bank payment service providers (PSPs) like aggregators and 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. Digital payments grew from 6% of GDP to 14% and now slipped to 12%. Cash is also 12% 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 says.
PCI says, multiple digital payments reports over decades have never recommended zero MDR. This includes some of the recent ones like 'Committee for Deepening of Digital Payments Chaired by Nandan Nilekani', 'Framework for digital payments Chaired by Ratan Watal' and many more. All had recommended market-based pricing with support and focus to drive Merchant Acquiring. Recent RBI Vision 19-21 the document also recommends creating some additional efficiency wherever possible in costs, and not eliminating the MDR.
Naveen Surya, chairman, FCC and chairman emeritus of PCI says, "Considering digital payment in retail is little more than just 10%, 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% tax deduction at source (TDS) on cash above Rs1 crore received by the bank, would not be sufficient for the larger eco-system to be rewarded for their efforts."
Digital payments have received quite high interest from various investors both domestic and international. Private equity and strategic investors in this place are looking for consistency and principle-based policies to invest in this market. 'Knee jerk' policy changes like this is likely to spook such investors and will not be in favour of government of India, PCI says.
The council says it believes that 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 is a high growth area and with right policies and support, can work towards the acceleration of adoption of digital payments," PCI concludes.