Banks can lose up to Rs 1,800cr with zero MDR

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Mumbai: the annual loss of income caused by zero commercial rates in RuPay cards and UPI It is expected to be Rs 1.8 billion rupees according to the current level of transactions. Since banks can choose between suffering this loss or pressing Visa & MasterCard transactions, there are suggestions that the RBI should bear this cost.



The government last month eliminated commercial discount rate ( MDR ) — the fees that businesses pay banks for transferring money from the cardholders’ accounts to their own. While mandating small businesses to accept digital payments, the finance minister had said “the RBI & banks will absorb these costs from the savings that will accrue to them in account of handling less cash as people move to these digital modes of payment”.

According to a report (discriminatory approach for RuPay debit cards — a corrective approach) by IIT-Bombay professor Ashish Das, this results in induced discrimination between RuPay , in the one hand, & MasterCard & Visa in the other.

The revenue differential for banks between RuPay & MasterCard / Visa , would prompt them to promote that card scheme which generates more revenue for them, the report said. “Therefore, the RBI would need to set a revised cap in debit card MDR , in lines currently set for RuPay debit card by NPCI. Alternatively, if the RBI feels appropriate, it can increase the revenue support for RuPay debit card, in order to maintain parity with extant MDR caps set by the RBI,” Das said. According to the report, the revenue for RuPay debit card is expected to be no more than Rs 1,000 crore for calendar year 2020, while for BHIM- UPI , it is expected to be another Rs 800 crore.

As of December 2019, for BHIM- UPI , NPCI had an MDR cap of 0.3%, subject to a maximum of Rs 100. Additionally, to promote on-boarding of small & medium merchants with less than Rs 1 lakh worth of BHIM- UPI transactions in a month, there are no fees imposed. Also, for merchants other than online ones, there are no transaction fees when the ticket size is within Rs 100. “The MDR pricing structure for BHIM- UPI introduced by NPCI in October 2019 appears quite reasonable as it attempts to encourage small & medium merchants to get on-boarded & be active in acceptance of digital payments. In an attempt to encourage payment service providers, the RBI should provide for the necessary support for the banks’ revenue loss towards BHIM- UPI also,” said Das.

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