Digital payments: Visa blasts govt move to remove MDR; says banks, other stakeholders incur costs on infrastructure

After the Payments Council of India (PCI) issued a warning that the Budget proposal to remove the merchant discount rate (MDR) will lead to the “collapse” of the payments acquiring industry, global payments major Visa on Monday hit out against the government for abolishing the merchant discount rate (MDR) on card payments, as the logic of setting up the needed infrastructure sans payment is “fallacious”. Visa India country manager TR Ramachandran Monday pointed out that banks and other stakeholders incur a cost to put up the payments infrastructure like points-of-sale (POS) machines, and they need to be compensated for the same. Finance minister Nirmala Sitharaman in the Budget had said business establishments having a turnover of over Rs 50 crore should depend on low-cost digital modes of payment to their customers and “no charges or MDR would be imposed on customers as well as merchants”. The proposal has since been passed by Parliament along with the Finance Bill and the general budget. [caption id=“attachment_4210089” align=“alignleft” width=“380”]  A Visa credit card is seen on a computer keyboard. Reuters.[/caption] What is MDR The MDR is a commission of up to 2 percent paid by a merchant establishment to banks which put up the POS machines when she accepts the payment through debit/credit cards from a customer. According to some policymakers, the rate acts as a disincentive for popularising digital payments. The government’s move is contrary to various studies, including the Reserve Bank’s vision document released not so long ago, the Payments Council of India said in a statement 8 July. The reasoning behind card payments Ramachandran said the card payments save lots of money both for the government and the merchants by way avoiding or reducing cash handling cost and pointed out that the Reserve Bank alone incurs a whopping Rs 26,000 crore in handling cash charges annually. “…if the consumer, the government and the merchants are saving a lot on handling cash, a sliver of it can be passed on to the people who are building the infrastructure so that they are fairly compensated,” he said, speaking at the annual industry conference FIBAC—a banking sector conclave organised by the Indian Banks’ Association and industry body, the Federation of Indian Chambers of Commerce and Industry. Stressing that the payment intermediaries do not want a stash of money, he said but adequate compensation should be ensured so that every stakeholder has the “skin in the game”. “I am a firm believer in low economics but no economics student can believe in no economics,” he averred. It can be noted that a part of the MDR also goes to companies like Visa or Mastercard for their role as the payment intermediaries. Ramachandran listed out a slew of examples to justify the need to compensate the stakeholders who invest in building the infrastructure. Using a parallel from the telecom sector, he said if an operator offers both voice and data for free, who will pay for deploying the network for one and for servicing and maintaining for another, he wondered. Even sticking the QR code at the merchant establishments cost money and someone needs to be compensated for that as well he said. “I find the logic a bit fallacious because the cost is not free,” he said, asserting that even the RBI agrees that cost is not free. He further said if there is going to be no skin in the game, who will deploy these terminals and ensure that they reach the small towns. PCI’s emeritus chairman Naveen Surya earlier said only 10 percent of Indians currently use digital payments and the move comes at a time when there is a need for more players to enter the segment and invest so that this service is widened. “The announcement of the industry bearing the MDR will lead to the whole digital payment industry without any business and revenue model,” he warned. --With PTI inputs