Although banks have made little headway in acquiring merchants and enabling them to transact digitally, the government now wants lenders to acquire 100 vendors per branch. Senior executives familiar with the development told FE that the target for acquiring merchants has been more than trebled – from 30 earlier — though most bank branches had not even acquired 15 yet. Every scheduled commercial bank (SCB), irrespective of its size and ownership pattern, will now have to meet this target by the end of December this year. The deadline for the earlier target was September. Acquisition would entail enabling merchants to accept payments by one or more digital modes from a list that would include debit and credit card payments, Unified Payments Interface (UPI), BharatQR code, and Aadhaar-enabled payment systems (AEPS). Going by the total number of branches of the 41 listed SCBs as on December 31, 2016, 1.1 crore merchants need to be made enabled for digital payments by the end of December.
To put this into perspective, the total number of point-of-sale (PoS) terminals deployed by all banks put together was 26.14 lakh as of the end of April. Under the new rule, a bank like State Bank of India alone will have to acquire over 20 lakh merchants over and above the base it already has. Numbers for Aadhaar Pay and UPI- enabled merchants are not available as these channels are still in their early days.
Also, the number of PoS machines installed is much higher than that of merchants using them, as large merchants, especially those in organised retail, account for a chunk of these terminals. Bankers believe that the new directive pushes up an already-unrealistic target, given that it would be difficult to find a large number of eligible merchants in many parts of the country, especially the hinterland. Even if the target were to be met willy-nilly, there would be little chance of the exercise being financially viable for banks. A banker with a public-sector bank said on condition of anonymity, “In all these years, banks have already acquired the merchants that it made sense to acquire. If there was a business opportunity in acquiring aggressively, we wouldn’t have waited for targets.”
Merchants have to pay a merchant discount rate (MDR) to banks for every transaction they make. For PoS, MDR on transactions of up to Rs 1,000 is capped at 0.25% and for those between Rs 1,000 and Rs 2,000 at 0.5%. For UPI, the MDR is 0.25% for transactions up to Rs 2,000 and 0.65% above that. On February 16, the Reserve Bank of India had put out a draft circular regarding the rationalisation of MDRs as per merchant turnover. The final guidelines are yet to be released.