MDR waiver to hit fintechs, payments companies' business model

Industry fears the move to drag the growth of digital payments

Raising strong concerns over the government’s move to scrap merchant discount rate (MDR) charges on the transactions done via UPI and RuPay payment systems, the Payments Council of India (PCI) has said the move will have a catastrophic effect on payments companies and make their business model unviable.

According to the PCI, if the government wants to promote digital payments in the country, then a lower controlled MDR along with added tax benefits to merchants would be the solution. 

MDR is the rate charged to a merchant for digital payment processing services leveraged on debit and credit card transactions. It is usually 1-3 per cent of the overall transaction amount.

“Elimination of MDR will dry up revenues and create a catastrophic situation for new start-ups and fintech companies, as banks will not pay for their service,” said Vishwas Patel, chairman at PCI.

Questioning the government’s move to revoke the charges from January 2020, several fintech start-ups have also raised similar concerns. They said the move will directly affect their revenue streams.

“Who does it really benefit, other than of course, the NPCI, which owns RuPay and UPI?” said Akash Gehani, co-founder and chief operating officer (COO) of Bengaluru-based digital payments start-up Instamojo. 

He added, “While tax evasion is one of the boons of this move, its real benefit is put in question, given that these are companies with a turnover of Rs 50 crore and above. They already fall in a certain mandatory tax bracket.” 

The government, in its notification, has underlined that all firms with a turnover of more than Rs 50 crore have to offer a RuPay and UPI facility to customers towards a digitisation push.

“In fact, elimination of MDR may also result in withdrawal of the existing deployed PoS terminals in the market that are too huge in numbers. This would adversely affect digital payments in India,” said Byas Nambisan, CEO of Ezetap, an enterprise-focussed digital payments service provider.

Terming it a nationalisation of sorts for the payments industry, the PCI said if there is zero revenue to be made from the over 500 million plus RuPay debit cards that are active in the country, then service providers will start withdrawing the PoS terminals.

These are already deployed in unviable small shops and establishments. 

Continued maintenance of these PoS machines, training and supply of printer rolls will increase losses of these companies. 

However, players that operate in the prepaid debit card space are not much worried about the government’s move. 

“MDR charges are applicable on debit cards now and not on prepaid cards. Hence, fintechs operating in the prepaid card space will not have any impact,” said Shailendra Naidu, CEO, indyFint, a virtual banking start-up.