Pay­ments Coun­cil Wants Limit on MDR Re­moved

The Economic Times - - Economy & Companies - Pratik.Bhakta @times­group.com

Mum­bai: The Pay­ments Coun­cil of In­dia (PCI) has sug­gested un­cap­ping of the mer­chant dis­count rate (MDR) and in­tro­duc­ing bud­getary pro­vi­sions for cap­i­tal ex­pen­di­ture by the govern­ment as a means to im­prove the ‘Card Ac­cept­ing In­fras­truc­ture’.

The RBI had re­leased a con­cept pa­per ask­ing for sug­ges­tions on how to im­prove the dig­i­tal pay­ments in­fras­truc­ture in the country. The pa­per had cited cap­ping of the MDR as one of the ma­jor rea­sons for slow­down in growth of POS ma­chines to around 28%, while debit cards grew 64% be­tween 2013 and ’15. “We have pro­posed a dif­fer­en­ti­ated MDR for seg­ments which con­sti­tute es­sen­tial goods and ser­vices like pub­lic dis­tri­bu­tion ser­vices, sub­sidised util­ity ser­vices. How­ever, for other com­mer­cial ser­vices, MDR should be mar­ket-driven,” said Naveen Surya, chair­man, PCI, which is an um­brella or­gan­i­sa­tion for pay­ments com­pa­nies. At present, MDR, which is the price the mer­chant pays to the bank for us­ing a POS ter­mi­nal, is capped at 0.75% for an amount less than .₹ 2,000, and 1% for transac- tion value above .₹ 2,000.

Surya said that a dif­fer­en­ti­ated MDR, cou­pled with bud­getary al­lo­ca­tion for cap­i­tal ex­pen­di­ture from the govern­ment, could help in the ex­pan­sion of point of sales ter­mi­nals, es­pe­cially in tier III to tier VI ar­eas where set­ting up POS ter­mi­nals is not fea­si­ble.

The coun­cil has also sug­gested the need to bring par­ity in the re­ward ra­tio for both the is­suers and ac­quir­ers for pay­ments through POS ter­mi­nals. “At present, there’s no par­ity in the in­ter­change fees for dig­i­tal trans­ac­tions and it’s highly lop­sided in favour of the is­suer. A higher rev­enue share for the ac­quirer would give a big boost to the ac­quir­ing side of the busi­ness, be­cause any­way the mar­gins there are nar­row,” he said.

The coun­cil has also asked for the clar­i­fi­ca­tion on the us­age of the term ‘point of sales’ in the con­cept pa­per, be­cause if the end tar­get was digi­ti­sa­tion of pay­ments, the coun­cil felt that POS should also in­clude mo­bile phones and tablets as modes of ac­cep­tance of pay­ments. “We as re­mit­tance com­pa­nies have been op­er­at­ing wal­lets for even cus­tomers with­out a bank ac­count. If we were al­lowed to in­te­grate with UPI, we could di­rectly send money to the ben­e­fi­ciary’s ac­count num­ber through a smart phone. That would also help in digi­ti­sa­tion of pay­ments, which is the ul­ti­mate aim of RBI,” said Surya.

The cen­tral bank had been crit­i­cal of the way banks have only been is­su­ing cards and have not ac­quired suf­fi­cient mer­chants where the cards could be used. It said that 88% of the to­tal vol­ume and 94% of the to­tal value of debit card trans­ac­tions came from the ATMs. This showed that while debit cards stood at more than 630 mil­lion in cir­cu­la­tion, they were mostly be­ing used for with­draw­ing cash, thereby not al­low­ing pay­ments to hap­pen dig­i­tally.

The RBI pa­per had cited cap­ping of MDR as one of the ma­jor rea­sons for slow­down in growth of POS ma­chines

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