Payments Council Wants Limit on MDR Removed
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