PCI on MDR sharing: Banks not playing fair with acquirers

The Payments Council of India (PCI) on Thursday accused banks of not sharing the merchant discount rate (MDR) reimbursement for small-value digital transactions with merchant aggregators and acquirers.

rbi, banking sector, banking industry
As per the Reserve Bank of India’s (RBI) guidelines, small merchants, or those with an annual turnover of up to Rs 20 lakh, can be charged a maximum of 0.4% for each transaction made through a physical point of sale (PoS) terminal or online and 0.3% for transactions using a quick response (QR) code.(Reuters)

The Payments Council of India (PCI) on Thursday accused banks of not sharing the merchant discount rate (MDR) reimbursement for small-value digital transactions with merchant aggregators and acquirers. The MDR is the charge a merchant pays to a bank for availing digital payment services which, in turn, is shared with non-bank acquirers enabling transactions.

The ministry of electronics and information technology (MeitY) had stepped in to ease the pain.

In December 2017 said that it would bear the MDR charges on transactions up to Rs 2,000 made through debit cards, Unified Payments Interface (UPI) or Aadhaar-enabled payment systems to promote digital transactions.

According to PCI’s statement, the ministry has already reimbursed banks for transactions since January 1, 2018. “It is believed that MeitY has already reimbursed the MDR subsidies to banks, but most of the banks have yet not reimbursed the due share to aggregators. The payment companies have been constantly following up with banks but are yet to receive such reimbursements,” PCI said, adding that for most payment companies, MDR is the major source of business revenue and non-receipt of such reimbursements has a serious impact on their business. The payments body estimates that around 80% of all debit card transactions by volume and 60% by value involve amounts under Rs 2,000.

Vishwas Patel, chairman, PCI, said in the statement, “Major public-sector banks like State Bank of India (SBI) have announced that they will not reimburse for off-us transactions (those involving other banks) of debit cards for transaction amounts below Rs 1000, though MeitY has said that they will be reimbursing the bank up to 0.40% of transaction amount to banks.”

As per the Reserve Bank of India’s (RBI) guidelines, small merchants, or those with an annual turnover of up to Rs 20 lakh, can be charged a maximum of 0.4% for each transaction made through a physical point of sale (PoS) terminal or online and 0.3% for transactions using a quick response (QR) code. The MDR is capped at Rs 200 per transaction for small merchants. For merchants with an annual turnover above Rs 20 lakh, the charges can be no higher than 0.9% for transactions made over a PoS terminal or online and 0.8% for QR code-based transactions. The value of MDR for such merchants is capped at Rs 1,000.

According to Ritesh Pai, chief digital officer, Yes Bank, “As per government of India’s mandate, we are not recovering MDR on domestic debit card/ UPI transactions of value up to Rs 2000 with effect from January 1, 2018, from merchants — offline, online, aggregators, etc. Also, as per the mandate, the MDR cost is being reimbursed to us as acquirers by the RBI on quarterly basis.”

According to a calculation made by Kotak Institutional Equities , the total MDR generated in FY17 stood at approximately Rs 3,000 crore.

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