Payments Council says zero MDR will be bad for fintechs

The Payments Council of India (PCI), an industry body representing over 100 payments and settlement systems, has said that the ‘zero MDR’ move proposed in Budget 2019 will ‘spook investors’ in the fin-tech sector and lead to the collapse of the industry.

MDR, or merchant discount rate, is a fee charged from a merchant by the bank to process payments made through credit or debit cards at the establishment. It is set as a percentage of the transaction processed. 

“Considering digital payment in retail is a little more than just 10%, we have miles to go and need many more players to be willing to invest and work to provide these services,” said Naveen Surya, chairman of Fintech Convergence Council and chairman emeritus at PCI. “This announcement of industry bearing MDR would lead to the whole digital payment industry without any business and revenue model.” 

The statement from PCI also mentioned recent reports, including the one submitted by a five-member committee led by Nandan Nilekani on digital payments ecosystem in India to the Reserve Bank of India (RBI), and RBI’s vision document for 2019-21 that does not mention doing away with MDR. 

“Indian MDR is one of the lowest across the globe even when monthly retail digital payments volumes are negligible at $250 billion,” said Vishwas Patel, chairman of PCI and director at Infibeam Avenues. “International benchmarking should be done before such policies are implemented. It is well established that in any growing economy for the payments infrastructure to grow, we need policies that are ‘acquirer friendly’, which can attract capital.”

Deepak Chandani, CEO, South Asia and Middle East, at business and payment transactional service provider Worldline, said that the announcement might lead to banks recovering MDRs from non-bank fintech partners to the detriment of the industry.