UPI, RuPay: Banks seek funds in lieu of zero MDR

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Published: January 22, 2020 1:20:56 AM

In a letter to the finance ministry, marked to the Reserve Bank of India (RBI), Indian Banks Association (IBA) has sought an acceptance development fund (ADF) to be managed by the central bank.

UPI, RuPay, zero MDR, ADF, RBI, Nirmala Sitharaman, Nandan Nilekani Committee, Rupay card transactions MDR, debit cards, finance ministryThe move to a zero MDR regime, bankers claim, would result in an annual loss of Rs 5,000 crore given the costs relating to such transactions would need to be incurred.

By Shritama Bose & Malini Bhupta

Banks have asked the government for funds to support the payments ecosystem now that they can no longer charge merchants a fee for using the Unified Payments Interface (UPI) and RuPay card infrastructure.

In a letter to the finance ministry, marked to the Reserve Bank of India (RBI), Indian Banks Association (IBA) has sought an acceptance development fund (ADF) to be managed by the central bank.

The move to a zero MDR regime, bankers claim, would result in an annual loss of Rs 5,000 crore given the costs relating to such transactions would need to be incurred. Finance minister Nirmala Sitharaman had announced in the Budget for 2019-20 that no charge would be levied on UPI and Rupay transactions. Banks typically charge merchants a fee called the merchant discount rate (MDR) for use of the payments infrastructure. As of now Visa and MasterCard cards are permitted to charge MDR although there have been reports this would be discontinued.

The Nandan Nilekani Committee on deepening of digital payments had recommended an ADF for improving the acquiring infrastructure in Tier IV, V and VI locations. As per the committee’s report, issuers would be required to contribute to this fund from interchange fees, matched by funds from the RBI. The proposal has gained fresh relevance at a time when two modes of merchant payments have gone MDR-free. While the RBI had said, at its October 2019 monetary policy review, the framework for an ADF would be operationalised by December 2019, there has been no announcement on the matter. “If the MDR piece is going to become zero, there won’t be funds for setting up point of sale infrastructure,” one of the persons aware of the development told FE.

Banks are hoping the ADF will come through in the next one month and expect some indication in the Union Budget.

Payments experts said unless banks were compensated in some manner, banks might charge customers a fee for using debit cards or they might simply go easy on issuing RuPay cards. “The government has stopped compensating lenders for MDR from January and for UPI and Rupay card transactions MDR has been made zero. While the revenues have been foregone, the costs of the business remain,” an executive with a leading bank pointed out.

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