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The Finance Ministry has virtually turned down banks’ demand for an annual compensation of ₹2,000 crore to meet the cost of running an MDR-free payment infrastructure for RuPay and UPI.
The Ministry sees no merit in this demand and feels that the savings to banks on reduced cash handling (by virtue of low-cost digital mode adoption) will more than compensate for the cost incurred in running the ‘zero Merchant Discount Rate’ payment infrastructure, official sources said.
The RBI and banks should be far-sighted and eliminate MDR costs on merchants and consumers, according to the Finance Ministry. This should, in the long run, be more than compensated by the savings from reduced cash handling as more people move to low-cost digital payment modes, sources added.
With people switching to digital payments, banks will save substantially on the cost of cash management (storing, transporting, distributing, replacing or handling). By one estimate, the RBI and commercial banks can save ₹21,000 crore every year on currency management.
The government had specified that from January 1 MDR would not be applicable on payments made through RuPay Debit Cards, BHIM-UPI and UPI QR Code.
The Finance Ministry has also refuted the contention in certain quarters that elimination of MDR on RuPay and UPI would kill the payments industry and make the business model unviable.
According to the sources, card lobbies, which used to earn well via MDR, have started circulating false narratives that the ‘zero MDR’ move is akin to nationalisation of the payments industry and that there could be ‘near stoppage in customer incentive spends by market participants’.
The National Payments Corporation of India and the State Bank of India, too, have been seeking parity on the waiver of processing charges for RuPay cards with the likes of Visa and MasterCard, claiming that otherwise it would put them at a disadvantage.
They claim that the MDR waiver policy would nullify “years of hard work done by domestic companies in expanding the digital payments network and would put NPCI at a disadvantage over international rivals in the market”.
According to market estimates, there are over 500 million RuPay debit cards in circulation and 4 million Point of Sales machines processing debit card payments. Annual MDR collections range from ₹7,000 crore to ₹8,000 crore. Of this nearly 55 per cent goes to private fintech players and the rest to banks.
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