When merchant fees on transactions at point-of-sale (PoS) terminals and e-commerce platforms were waived in January, the intent was to popularise the use of electronic payment channels. However, the opposite may have happened, data put out by the National Payments Corporation of India (NPCI) suggest. While RuPay transactions had been rising in terms of volumes and value up to January, they began to slide thereafter. From 140 million transactions worth Rs 16,728 crore in January, merchant transactions using RuPay cards slid to 132 million transactions worth Rs 15,902 crore in February and 117 million transactions worth Rs 13,745 crore in March.
On December 28, 2019, the government announced that merchant discount rate (MDR) will be zero for transactions made using RuPay cards and the Unified Payments Interface (UPI), effective January 1, 2020. Madhusudanan R, co-founder and CEO of M2P Solutions, which offers payments solutions to banks and fintechs, pointed out that the initial lot of cards for Jan Dhan accounts were not chip-and-pin cards but subsequently RBI asked banks to issue only chip-and-pin cards. “That led to some amount of attrition,” Madhusudanan said. As the number of RuPay cards in the system fell, so did the volume of transactions.
However, it is also true that waiving the MDR leaves lenders with little incentive to issue cards because that is compensation for banks who acquire merchants for digital payments. The transition to the zero-MDR regime for RuPay and UPI left the system poorer by up to Rs 3,000 crore, bankers say. Madhusudanan believes that the impact of the zero-MDR regulation on outstanding RuPay cards in the system has not played out yet and that it is likely that banks will issue fewer new RuPay cards. Banks have so far been on wait-and-watch mode to see if the government withdraws the zero-MDR notification.
According to the Pradhan Mantri Jan Dhan Yojana (PMJDY) website, the total number of RuPay cards issued so far stands at over 290 million. While banks issue RuPay cards to non-Jan Dhan account-holders as well, PMJDY accounts for the bulk of such cards in the system.
E-commerce transactions have so far seen a smaller decline than those at POS terminals because consumers who transact online have a longer history of using digital modes of payments. Razorpay CEO and co-founder Harshil Mathur said RuPay transactions were holding firm online till Covid-related lockdowns began last month. “On the online side, transactions had been growing even up to mid-March, when the lockdowns began. Even if cards in the system fall, online transactions do not get affected by that first because first-time cardholders generally do not transact online,” Mathur said.