Can MDR Return For UPI, RuPay? Banks, Payment Firms Urge Govt For Restoring MDR

Banks association and payments forums urge the Centre to restore the Merchant Discount Rates.
Banks association and payments forums urge the Centre to restore the Merchant Discount Rates.

Starting January 1, 2020, Finance Minister Nirmala Sitharaman announced for all businesses with an annual turnover of Rs 50 crore or more to offer digital payment modes to customers, along with wavering the Merchant Discount Rate (MDR) on transactions made via RuPay Debit card and UPI codes.

Now, in a meeting with the Finance and IT ministries, industry body Indian Banks’ Association and various payments forums have put forward their concerns and need for restoring the MDR on online transactions made via UPI and Rupay cards.

MDR Waived On Online Transactions

In 2019, FM Sitharaman announced to waive the Merchant Discount Rate on digital transactions made using RuPay credit cards, or UPI QR codes.

MDR is the fee that a merchant pays to the bank, when a customer swipes a card on the merchant’s point-of-sale (PoS) terminal. This rate is distributed among three stakeholders—the bank that enables the transaction, the vendor that installs the PoS machine and the card network provider such as Visa or MasterCard.

Sitharam announced that all businesses with annual turnover of more than Rs 50 crore will have to offer low cost digital payment options, which include BHIM UPI,  UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT, RTGS.

The FM said that the RBI and banks would make up for the wavering of MDR. This was done to promote a “less cash” economy so that small merchants too would adopt  digital payment methods.

Banks Association Urges Centre to  Restore MDR

According to data provided by ET, in a meeting with the ministries of finance and IT, the industry body Indian Banks’ Association (IBA) and different payments forums urged to reconsider restoring the MDR on online transactions, as a part of pre-Budget consultations.

Sources have proposed the ministries to include “discounted MDR on RuPay to make it competitive with Visa and Mastercard” bank cards, and flat, “slab-based MDR on UPI transactions.”

A different source has informed of an urgency involved to restore the said discount rates, as due to the Covid-19 induced pandemic, there has been a voluminous increase in the number of digital transactions, which have put the burden of the waivered merchant rates completely on banks.

Banks are unable to cope with these charges ‘due to lack of incentives to upgrade or invest, transaction failure rates on UPI are surging’.

This source has also informed that the MDR waiver “put NPCI under competitive disadvantage against international rivals like Visa and Mastercard”.

Another official informs, “There is no incentive for banks … they have gone slow in replacing the old chip and pin cards and issuing new cards as they don’t want to add to the financial hit which was earlier estimated to be nearly Rs 3,000 crore when MDR was withdrawn”.

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