scorecardresearch

RBI wants stakeholders’ feedback on UPI MDR

The discussion paper said there is good reason for the RBI to regulate MDR on credit card transactions, which are market-determined at present. “As the charges for some credit cards are exorbitant and they do not come down with falling interest rates, there may be a case for MDR for credit card payments to be regulated by RBI,” it said.

This MDR may be reset for the entire industry, once in a year, at the beginning of a financial year based on the average lending rate of a few large banks during the last financial year, the paper said. It sought comments on whether MDR and interchange on credit cards should be regulated by the RBI.
This MDR may be reset for the entire industry, once in a year, at the beginning of a financial year based on the average lending rate of a few large banks during the last financial year, the paper said. It sought comments on whether MDR and interchange on credit cards should be regulated by the RBI.

The Reserve Bank of India (RBI) asked stakeholders if merchant discount rate (MDR), a fee paid by merchants to acquiring banks, should be brought back for Unified Payments Interface (UPI) transactions in a discussion paper released on Wednesday.

The paper, which sought feedback on the fee structure for a whole gamut of digital payment channels, will be open for comments till October 3.

“In any economic activity, including payment systems, there does not seem to be any justification for a free service, unless there is an element of public good and dedication of the infrastructure for the welfare of the nation. But who should bear the cost of setting up and operating such an infrastructure is a moot point,” the RBI said in the paper. UPI and RuPay debit card transactions currently attract no MDR, following a government decision to relieve merchants of these charges and ensure greater acceptance of digital payments, effective January 1, 2020.

Also Read| Government ceding control could impact PSBs’ credit profile, ratings: India Ratings

The paper also asked if, in the context of zero charges, it might be more effective to subsidise costs for UPI service providers. “Adjustment in models may happen when charges are prescribed through statutory or regulatory mandates, in the interest of public good. In such a scenario, it becomes important to ensure that payment services are priced in a manner that retains incentives for both, users to access the services and, service providers to offer them,” the central bank said in the paper.

The discussion paper said there is good reason for the RBI to regulate MDR on credit card transactions, which are market-determined at present. “As the charges for some credit cards are exorbitant and they do not come down with falling interest rates, there may be a case for MDR for credit card payments to be regulated by RBI,” it said.

One way of doing this would be to make MDR for credit card transactions equal to MDR for debit card transactions, plus average rate for 30 days’ credit of a few large banks, considering that a customer gets an average 30-day free credit period on a credit card transaction. This MDR may be reset for the entire industry, once in a year, at the beginning of a financial year based on the average lending rate of a few large banks during the last financial year, the paper said. It sought comments on whether MDR and interchange on credit cards should be regulated by the RBI.

The paper said that the cost to small merchants for accepting debit card transactions has come down substantially. However, the RBI continues to receive complaints from merchants on their cost of accepting digital transactions. “Many of these complaints arise due to the role played by intermediaries in the acquiring process,” the central bank said, suggesting the regulation of interchange or the mandating of per-transaction fees as possible solutions for the problem.

Further, the RBI asked if MDR for debit cards should be uniform across merchants, irrespective of turnover, whether they should be deregulated and whether RuPay debit cards should be treated differently from debit cards issued by international card networks. Under the present pricing regime, RuPay debit cards earn no MDR. For other debit cards, MDR is capped at 0.4% for merchants with a turnover up to Rs 20 lakh and at 0.9% for others.

The central bank also asked if it should review the policy of not levying charges on members for Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) transactions, considering the cost of infrastructure and operations involved. Similarly, it sought comments on whether customer charges applicable to both payment channels should be allowed and, if so, whether they should be subject to regulatory prescriptions. In addition, the paper sought feedback on whether Immediate Payment Service (IMPS), operated by the National Payments Corporation of India (NPCI), should have RBI-regulated transaction charges.

RBI discontinued levying processing charges and time varying charges for RTGS transactions, on members from July 1, 2019. Banks are not allowed to charge customers for inward RTGS transactions, but they can charge up to Rs 25 for outward transactions between Rs 2 lakh and Rs 5 lakh and up to Rs 50 for outward transactions above Rs 5 lakh. Charges for NEFT transactions can go up to Rs 25, depending on the value of the transaction.

The paper said that while there are many intermediaries in the payments transaction chain, consumer complaints are generally about high and non-transparent charges. “Charges for payment services should be reasonable and competitively determined for users while also providing optimal revenue stream for the intermediaries,” the RBI said, adding that this was the reason behind carrying out a comprehensive review of the various charges levied in the payment systems.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.