The Payments Council of India (PCI), an umbrella body of all payments and settlement companies, has once again raised concerns over non-receipt of reimbursements of MDR (merchant discount ratio) by merchant aggregators, from the related acquiring banks since January 2018, despite a government notification in this regard.

MDR is the charge for facilitating a digital transaction and is to be split among all stakeholders. [The key stakeholders in a debit card transaction include the issuing banks, card networks, acquiring banks, merchant acquirers and payment service providers.] Each of them adds value to the digital payment ecosystem and there is a cost attached to the value added. In the Debit Card / BHIM / UPI / Aadhaar-Pay payment eco system, when any payment is made at a merchant Point of Sale (POS) through POS machine or QR “scan & pay” or online mode of payment, MDR charge is payable by the merchant to his bank(acquirer).

The Ministry of Electronics and Information Technology (MeitY), in a bid to encourage digital payments in the country, had issued a notification in December 2017, stating that the Government will reimburse the MDRs on transactions below Rs 2,000 if made through debit cards, BHIM UPI or Aadhaar-enabled payments systems.

Grey areas

PCI in a statement said that while there are concerns related to the non-receipt of the MDRs, there is still ambiguity on the extent of MDR reimbursements that will be passed on to the aggregators and the industry fears that banks will pass on a very small proportion of the reimbursements to merchant aggregators and acquirers, and retain the bulk of it with themselves. This, the PCI feels, will adversely impact the operating ability of merchant aggregators and dent the efforts to promote digital payments.

Vishwas Patel, Chairman of Payments Council of India, says, “… As far as I am aware, none of the banks has reimbursed for debit card / UPI / AEPS transactions processed from January 1, 2018, till date. Also, major public sector banks like State Bank of India have announced that they will not reimburse for debit card transaction below ₹1,000, even though MeitY has said that they will be reimbursing the bank up to 0.40 per cent of transaction amount to banks. This will kill micro transactions as it will make processing below ₹1,000 totally unviable for our non-banking merchant aggregators and acquirer members. Over all, MDR reimbursement taking such a long time and fear of not getting sufficient share from banks is a major concern area right now for all our members.”

Call for timely payment

It is believed that, MeitY has already reimbursed the MDR subsidies to banks, but most of the banks have yet not reimbursed the due share to aggregators. The payment companies have been constantly following up with banks but are yet to receive such reimbursements. For most payment companies, MDR is the major source of their entire business revenue and non-receipt of such reimbursements, poses a serious impact to their businesses.

The RBI and NPCI transaction data for debit cards, UPI, BHIM and AEPS from January to June 2018, states that over 3,000 million transactions have been processed with value of more than ₹4,50,000 crore.

The body estimates that around 80 per cent volume and 60 per cent of the total value of transactions done through debit cards are for a value of below ₹2,000. This translates into a significant amount of business costs incurred on such transaction for which MDR reimbursement is due. Setting up of acceptance infrastructure as well as supporting small merchants in deeper pockets of the country involves high cost and low margins and absent timely reimbursements, the industry would be impacted in its efforts of promoting digital payments.

The non-banking payment entities take the responsibility of not only providing the infrastructure but also managing merchant’s evaluation, servicing, risk management and education, and MDR is the only source of revenue for these payment companies, PCI added.

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