Zero MDR would leave banks and payment service providers with no incentive to deploy acceptance infrastructure on the ground as it would skew the cost-benefit economics for these companies, a senior VISA spokesperson said at a panel discussion in an event organised by FICCI and IBA here on Monday.
“If there is going to be no skin in the game for anybody to deploy these terminals, and roll them out geographically in tier-III and IV cities, it’s like saying voice is free and data is free, but without the supporting infrastructure,” said T R Ramachandran, group country manager India and South Asia. “Why would a bank go and deploy these machines (POS) or do KYC? To stick a QR code (at merchant points), it costs money and somebody’s got to pay for it…I’m a firm believer in low economics but no economics student can believe in no economics.”
Finance Minister Nirmala Sitharaman in her budget speech had made a host of announcements to further New Delhi’s objective of creating a less cash economy such as 2 percent tax on cash payments over Rs.2 crore, compulsory digital payments option at all major merchant points and zero MDR for payments on any digital channel.
“RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment,” Sitharaman had said.
It is estimated that minting, handling and accounting of cash costs the economy about 2 percent of the overall GDP every year. The government has been pushing both banks and consumers to transact digitally to save on these costs. Through zero MDR the centre wants to accelerate the process by giving customers more options to pay digitally and gradually move away from cash.
“I find the logic a bit fallacious because cost (of replacing cash by digital) is not free. They (RBI) incurs a cost of Rs.26000 crore per annum to set up apparatus of cash and therefore, if consumer, the govt and the merchant are saving on these costs, a sliver of it can be passed on to those building the infrastructure,” said Ramachandran.
However, he pointed out that the move won’t impact payment gateways such as Visa and Mastercard as charges on technological service provided by them doesn’t fall under the purview of MDR. These rates, charged by an acquirer bank from a parent bank to process digital transactions, are generally set at 0.25 percent of the transaction amount for less than Rs.2000 crore and 0.65 percent for transactions above Rs.2000 crore.
Payments companies and banks that ET has spoken with said that no clarification has been issued by the centre yet on the implementation of the move since the announcement in July. A senior executive at a major payments company had said that the move would severely impact many service providers as MDR is the only source of direct revenue for many of these companies.