RBI report makes case for reinstating of MDR charges, says zero-MDR killing innovation
A recent RBI report, QR Code based Payments: Opportunities and Challenges, says zero-MDR (merchant discount rate) has harmed the payments ecosystem, which in turn, has had a retarding effect on innovation in the space. The government, which had abolished MDR collection by banks on RuPay, UPI and QR transactions last year in a bid to drive up merchant adoption of digital payments, should have wised up to this much earlier.
Indeed, NITI Aayog principal advisor Ratan Watal and former UIDAI chairman—also, the head of committee on digital payments set up by RBI—Nandan Nilekani had both argued for MDR saying that it would help grow the digital payments segment.
The government should now listen to RBI if it is to ensure that the payment ecosystem grows in India. If the government doesn’t budge, it risks destroying four years of work that has gone into advancing digital payments. The industry has spent Rs 2,000 crore in 2-3 years and continues to invest Rs 1,000 crore annually. Besides, if the government is eager to promote digital means, it can bear the cost of MDR for the time being or incentivise merchants in other ways to use digital payments. If indeed this is a factor behind innovation slowing down-with the revenue source gone, banks will be unwilling to pump in money for new features and products-sustained adoption of digital payment could become difficult. If digital payments are to grow, the government will need to look at other alternatives, rather than cutting into the revenues of payment gateways.