The waiver of the merchant discount rate (MDR) on digital payments will slow down its deployment in the country, where the cost of merchant acquisition is between $500 million and $1 billion a year, National Payments Corp of India (NPCI) chief executive Dilip Asbe said at a panel discussion on the 22nd of July. This is as per a report in the Economic Times.
“At a broad level, the payment deployment ecosystem needs a 20-25 basis point incentive for acquiring merchants, deploying devices and securing the systems,” Asbe said, speaking at the ongoing Global Fintech Festival. “While the industry understands the need for zero MDR, funds are required for deploying payment systems.”
The NPCI is currently discussing the possibility of bringing back MDR with the government, he added.
Speaking at the event later, Niti Aayog CEO Amitabh Kant said payment companies should tell the government how to solve the issue of zero MDR. “We, in the government want to hear from the industry about the road ahead,” Kant said in a discussion with PhonePe CEO Sameer Nigam. “If you tell us, we’ll listen and take up the issue.”
MDR is the fee levied by banks, generally from the merchants processing transactions on their systems. This was waived on transactions happening through NPCI’s RuPay and UPI modes by the government last year to incentivise small merchants to adopt digital modes of payments.
The Reserve Bank of India earlier this year had set up a Payment Infrastructure Development Fund of Rs 500 crore to support the sector, reeling under the loss of revenue, in deploying devices in rural geographies.
“We are reviewing with the government whether it is possible to bring back MDR in an appropriate way,” said Asbe. “We have anyway allowed small merchant payments to be made through a P2P mode where the MDR is zero.”