With a vision to drive the economy to $5 trillion by 2025, the budget offers a mixed bag of positive and negative developments for the payments industry, says Payment Council of India (PCI), the representative association of digital payments companies in India. Some of the positive developments include driving digital payment solutions for SMEs, relaxation of payment service charges to consumers, and FDI relaxation for insurance intermediaries.
While compulsory usage of various digital payment options by all merchants above Rs 50 crore turnover and penalty mechanism in case the same are not offered is a positive move, the zero MDR (Merchant Discount Rate) for all merchants, with cost to be borne by RBI and banks comes as a surprise, which has not gone well with and appreciated by the payments industry.
An MDR is the price paid by a merchant to a bank for accepting payment from their customers through credit or debit cards every time a card is used for payments at their points of sales. An MDR is evaluated in percentage of the amount of money transacted.
Loney Antony, Co-chairman, PCI and 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. 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.”
Deepak Chandnani, CEO, South Asia & ME, Worldline, said, “With the banks being asked to bear the 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.”
Naveen Surya, Chairman, FCC and Chairman Emeritus, PCI, said “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% 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 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, the direction of attracting foreign capital. The investors are already managing some existing policies with great difficulty e.g. compulsory full KYC even for Re 1 transaction and no access to UIDAI or Aadhaar for KYC, higher cash in circulation and easier norms to deal in cash versus digital.