Even after deadline, zero-MDR regime yet to kick in

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Published: November 6, 2019 5:58:28 AM

MDR is a fee paid by merchants to banks for offering them infrastructure to accept digital payments.

zero MDR regime, non-bank payment players, digital transactions, MDR waiver, BHIM UPI, Aadhaar Pay, NEFTThe government has not given a roadmap to banks and payment companies on the migration to the new pricing regime.

Banks and non-bank payment players are groping in the dark even after the November 1 deadline to move to a zero-MDR regime has passed.  The Union Budget had proposed to do away with merchant discount rate (MDR) on digital transactions from November 1.

However, there has been no official communication from the government to payment players on how to implement the new regime, several executives from the industry told FE. As a result, merchants continue to pay the existing MDR rates.

MDR is a fee paid by merchants to banks for offering them infrastructure to accept digital payments. The amount is then shared between the bank that offered the acceptance device (acquirer), the bank whose customer made the payment (issuer) and fintechs or card networks which facilitated the transaction.

The government has not given a roadmap to banks and payment companies on the migration to the new pricing regime. “We have not received any fresh notification from the government even though the new regime was supposed to kick in from November 1,” a top banker said, adding, “Talks have been happening at the level of the IBA (Indian Banks’ Association), but if the MDR is made zero, the return on investment on that cost is not justified.”

Some payment companies are still awaiting clarity from the government on the provision in the Finance Bill that seeks to waive the MDR requirement for merchants with a turnover of `50 crore. “We don’t know which categories of cards or which modes of payment are to be covered under zero-MDR,” an executive with a merchant-acquiring fintech firm told FE on condition of anonymity. “It is the smaller merchants who need an MDR waiver and not the larger ones,” he observed.

Some banks are understood to be contemplating the very question of their continuance in the merchant acquisition market, given that it is already a loss-making line of business. “It was always supposed to be a volume game, but there should at least be some incentive to go out and invest,” the banker quoted above said.

In her Budget speech on July 5, finance minister Nirmala Sitharaman had said establishments with annual turnover of Rs 50 crore and above shall offer low-cost digital modes of payment, such as BHIM UPI, UPI-QR Code, Aadhaar Pay, debit cards, NEFT and RTGS, to customers, and no charges or MDR shall be imposed on customers or merchants.

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