Visa, Mastercard Support Proposed Changes To Debit Card Fee Structures
Major card networks said that RBI’s proposal to create differential MDRs is an optimal solution.
Mastercard, Visa and Rupay - the three biggest providers of debit cards think that the regulator has tried to strike a fine balance in proposing a cut in fee as a way to improve the penetration of digital payments.
Last week, the Reserve Bank of India (RBI) released draft regulations proposing a Merchant Discount Rate (MDR) as low as 0.3 percent of the transaction value for small merchants using digital point-of-sale terminals. This is substantially lower than the one percent charged currently. The RBI capped MDR higher at 0.95 percent for merchants with turnover more than Rs 20 lakhs per annum.
Apart from distinguishing between categories of merchants, the RBI also proposed lower fee for digital payment systems that need lesser physical infrastructure. This includes QR code based based payment systems like BharatQR launched on Monday.
Porush Singh, Division President-South Asia at Mastercard said that the new proposals have struck a fine balance by carving out a special category of digital PoS which covers technologies like mobile PoS and BharatQR.
“MDR is lower [for digital pos]. The Reserve Bank of India has kept it at an optimal level of 0.4 percent. That is a highly competitive rate,” Singh told BloombergQuint on the sidelines of the launch of BharatQR. Singh added that acceptance infrastructure in the last few years hasn’t grown fast enough because the cost of devices like card swipe machines is high. A lower MDR for digital PoS systems could expand the reach of digital payments at a lower cost.
I don’t think they are drastic cuts. I think the RBI is doing exactly what is required. You need an optimal MDR structure – transactions grow, volumes rise electronically and everyone in the value chain grows further. You cannot do that by having a very high MDR.Porush Singh, Division President-South Asia, Mastercard
In a concept paper published in March 2016 on card acceptance infrastructure, RBI had mooted the idea of having lower transaction fees for merchants while claiming that it often acts as a “disincentive”.
Merchant Discount Rate (MDR) also often acts as a disincentive. Though the regulatory policy on MDR (issued in September 2012) had indicated a cap on MDR, it is generally treated as floor, with the benefit of lower MDR not really accruing to smaller merchants.Reserve Bank of India Concept Paper, March 2016
The regulator, however, also noted that lower MDR prevents companies and acquiring banks from investing heavily in providing infrastructure as their revenues reduce so there’s a need to rationalise it in a way that there’s some skin in the game for everyone.
TR Ramachandran, group country manager-India & South Asia at Visa said that the proposed guidelines manage to do exactly that.
What the RBI has really tried to do is to draw the fine line between general category merchants who pay 0.95 percent to a vast majority of the market which needs merchants to adopt digital payments where they have suggested a 0.4 percent basis points. I think they have tried to strike a balance between growth of the industry and getting merchants on board.T.R. Ramachandran, Group Country Manager-India & South Asia, Visa
A.P. Hota, managing director and chief executive officer of National Payments Corporation of India (which runs the Rupay network) told BloombergQuint that there’s insufficient acceptance infrastructure in India which can be remedied by having lower MDR for transactions.
“It is pretty good that they have created a small merchant category has been created. By creating a new category with lower MDR, I suppose there’s big incentive for the merchants to come to digital platform,” Hota said.
Not just Mastercard and Visa, private mobile wallet company Paytm also seems to be in favour of zero MDR for small and medium enterprises. The company’s founder Vijay Shekhar Sharma, said in a comment on microblogging site Twitter on Sunday, that he supports making transactions free of MDR for MSMEs.