Banks don't make money in the acceptance business and taking away the sliver of cover they earn from MDR could hamper investments in merchant acquisition.
Banks may be dutifully executing the government’s cashless agenda but there’s little buy-in from merchants. Fewer than half the vendors acquired by banks have gone cashless. A good 53 banks have been chasing targets but barely a dozen can claim a 50% success ratio when it comes to their merchants accepting payments digitally. And this in urban India.
Reluctant to leave a trail for the taxman, merchants, especially smaller shops, are not easily persuaded to transact digitally. Also, given that a large number of consumers are still more comfortable paying by cash, merchants, most of them offline brick-and-mortar stores, have little motive to use digital options rgularly to accept consumer payments.
Payment industry executives point out there is a cycle associated with merchant acquisition; merchants typically take up to two months to turn active acceptors of cashless payments. Once a device is given, it takes some time for it to be activated and for the merchant to be trained. Ashish Ahuja, EVP and head of products, Fino Payments Bank said, “The shorter the time taken to train a merchant and bring them on board, the higher is the traction that you will see in terms of per month activity ratio.”
There are other factors at work too. The ability of a small merchant to connect with their acquiring bank’s staff for a seamless resolution of any operational hiccups also determines their level of activity, Ahuja said.
Large players in the payments market also warn that the spread of cashless payments could slow if the government’s decision to waive merchant discount rate (MDR) for entities with a turnover of over `50 crore is implemented. Banks don’t make money in the acceptance business and taking away the sliver of cover they earn from MDR could hamper investments in merchant acquisition.
Parag Rao, country head (card payment products, merchant acquiring services and marketing), HDFC Bank, said the merchant economy is in a place where some say MDR charges are too high. “We have mixed views on that. We do understand that for small merchants it could be an entry barrier. But in my opinion, large merchants should be able to bear a 1% or 1.5% charge,” Rao said.
Fino Payments Bank was ranked the top performer in terms of targets achieved. A good 76% of its merchants were active in urban centres and it had achieved the acquisition target in full, according to June 30 data shared by (MeitY) with banks and reviewed by FE.
United Bank of India and Jammu & Kashmir (J&K) Bank were the only ones who reported their entire urban merchant network was active. However, the former turned in a poor score — 18% — in terms of meeting its target for merchant acquisition.
J&K Bank managed to meet 80% of its merchant acquisition target. Nine banks did not share data on merchant activity; the list includes full-service banks and payment banks.