Payments Industry still Awaits MDR Reimbursements from Banks: PCI
Posted on: 27/Sep/2018 6:17:50 PM
In a bid to promote digital payments, Government of India (Ministry of Electronics and Information Technology), had issued a notification in December 2017, stating that Merchant Discount Rates (MDRs) would be reimbursed by the Government on transactions up to Rs. 2,000. This was applicable on all transaction below Rs. 2,000 made through debit cards, BHIM UPI or Aadhaar enabled payments systems. Payments Council of India (PCI), the representative body of non-banking merchant aggregators and acquirers have raised serious concerns over non-receipt of reimbursements of MDR by merchant aggregators, from the related acquiring banks since January 2018.
In addition, there is still ambiguity on the extent of MDR reimbursements that will be passed on to the aggregators and the industry fears that banks will only pass on a small proportion of the reimbursements to merchant aggregators and acquirers, while retaining the bulk of it with themselves. This is likely to seriously impact the operating ability of merchant aggregators and dent the efforts to promote digital payments.
It is believed that, MeitY (Ministry of Electronics and Information Technology) has already reimbursed the MDR subsidies to banks, but most of the banks have yet not reimbursed the due share to aggregators. The payment companies have been constantly following up with banks but are yet to receive such reimbursements. For most payment companies MDR is the major source of their entire business revenue and non-receipt of such reimbursements, poses a serious impact to their businesses.
A notification issued by MeitY stated that – In the digital payments ecosystem, merchants play a very crucial role especially in a country like India where nearly 90% of merchants are from the unorganized sector in the form of small grocery stores, local outlets, etc. Considering RBI and NPCI transaction data for debit cards, UPI, BHIM and AEPS from January to June 2018, over 3000 million transactions are processed with value of more than Rs. 4500 billion.
PCI members believe that post demonetization role of merchant aggregators has been crucial in spreading digitization of payments across the country. The entire Payments Industry supported the movement with full participation.
The body estimates that around 80% volume and 60% of the total value of transactions done through Debit Cards are for a value of below Rs. 2000. This translates into a significant amount of business costs incurred on such transaction for which MDR reimbursement is due. Setting up of acceptance infrastructure as well as supporting small merchants in deeper pockets of the country involves high cost and low margins and absent timely reimbursements, the industry would be impacted in its efforts of promoting digital payments.
Vishwas Patel, Chairman of Payments Council of India says, “The prevailing ambiguity over MDR reimbursements, is leading the same industry which supported Digital India, to tremendous pressure. As far as I am aware, none of the banks have reimbursed for debit card / UPI / AEPS transactions processed from 1st January 2018 till date. Also, major Public Sector banks like State Bank of India have announced that they will not reimburse for Off Us transactions of Debit Cards for transaction amounts below Rs. 1000, though MeitY has said thatat they will be reimbursing the bank upto 0.40% of transaction amount to banks. This will kill micro transactions as it will make processing below Rs. 1,000 totally unviable for our non-banking merchant aggregators and acquirer members. Over all, MDR reimbursement taking such a long time and fear of not getting sufficient share from banks is a major concern area right now for all our members.”
The key stakeholders in a debit card transaction include the issuing banks, card networks, acquiring banks, merchant acquirers and payment service providers. MDR is the charge for facilitating a digital transaction and is to be split among all stakeholders. Each of them adds value to the digital payment ecosystem and there is a cost attached to the value added. In the Debit Card / BHIM / UPI / Aadhaar-Pay payment eco system, when any payment is made at a merchant Point of Sale (POS) through POS machine or QR “scan & pay” or online mode of payment, MDR charge is payable by the merchant to his bank(acquirer).
These non-banking payment entities take the responsibility of not only providing the infrastructure but also managing merchant’s evaluation, servicing, risk management and education, and MDR is the only source of revenue for these payment companies.
