Govt must foot the MDR charges if banks are not willing
While digital payments have posted a stellar growth over the past year, cash is still going strong. The ratio of currency in circulation—8.8% in March 2017—jumped to 11.4% in March 2019. To arrest this and spur digital, the finance minister, in her maiden budget speech, had announced that the merchant discount rate (MDR) would be done away with for businesses with a turnover of more than `50 crore, and that the Reserve Bank of India (RBI) and banks would bear the cost.
But, now, according to a Hindu Business Line report, the idea has not found resonance with banks, who have deferred implementation saying they are awaiting clarity on government rules.
The merchant discount rate is the rate charged to the merchant by the card-issuing bank, payment service, and the PoS provider. Although the government had eliminated MDR charges on transactions below `2,000 and had introduced differentiated rates for QR codes, the new move is a step forward to shift the cost of transactions on banks, so that merchants can transact more via digital.
But, payment companies believe that banks may choose not to deploy more infrastructure in light of increasing charges. A recent report released by RBI highlights that the central bank is looking to improve the card acceptance infrastructure to 50 lakh by the end of 2021.
There were 39.91 lakh PoS terminals in the country as of June 2019, and `56,973 crore worth of debit card transactions took place via these terminals. A better idea, thus, would be for the government to bear the costs of digital payment. More important, what the banks need to realise is that the cost of transactions in digital—even if it falls to them—is lower than the cost of transacting in cash. Given that banks spend `21,000 crore every year in currency management operations and the estimated MDR in 2016-17 was just `3,000 crore, adopting digital by footing the MDR bill would make more sense. Else, the shift to digital that India has seen over the last few years, will slow down, even if it isn’t summarily threatened.