Payment Council of India (PCI), the representative body of non-banking merchant aggregators and acquirers, has come out against the Reserve Bank’s proposal to reduce the merchant discount rate (MDR) on debit card transactions. “The MDR should be left to be decided by the market forces for sustainable growth. The current MDRs are already at a very low level and any further reduction of MDR will discourage future investment in the industry and potentially impact the growth of digital payments industry,” PCI said. The Reserve Bank of India had recently issued a draft circular aiming at rationalising MDR on debit card transactions.
Vishwas Patel, founder and CEO of CC Avenues and Vice-Chairman of PCI, said: “The good work done by the RBI in reducing the MDR in 2012 has been negated as acquirers did not have enough margins to install acceptance infrastructure as well as support small merchants across the country. The interchange is heavily favoured towards the card issuing banks, thereby not leaving any margins for acquirers and payment processors. We hope the RBI will ensure that there is equitable distribution of MDR among all players.”
The key stakeholders in a debit card transaction include the issuing banks, card networks, acquiring banks, merchant acquirers and payment service providers. The 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, it said. “The acquirers have been investing in giving small merchants access to digital paym ents. 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,” PCI said.
The RBI, in its draft circular, shared that the recent developments post demonetisation have led to smaller merchants taking the first step towards acceptance of digital payments but the momentum of e-payments acceptance needs to be maintained. “Over 10 lakh merchants have been acquired and are being serviced regularly by the non-banking aggregators and acquirers,” the circular said.
The draft circular said that small merchants and special category of merchants may not pay more than 0.40 per cent of the transaction value towards physical PoS (Point of Sale) infrastructure and 0.30 per cent towards digital PoS. It further said that all other categories of merchants (apart from the government) may not pay more than 0.95 per cent and 0.85 per cent of transaction value for physical and digital PoS. Currently, MDR charges on debit card transactions are below 0.75 per cent for transactions less than Rs 2,000 and less than 1 per cent for transactions above Rs 2,000.