PCI seeks reversal of zero MDR for UPI, RuPay transactions

The Payments Council of India (PCI) has sought a reversal of the zero MDR clause for RuPay debit cards and UPI, ahead of the annual budget.

Merchant discount rate (MDR) is a fee charged to merchants by banks to process payments made by customers using credit or debit cards.

The 2019 budget had nixed the MDR for payments made through UPI and RuPay cards from January 2020. Additionally, businesses with an annual turnover of Rs 50 crore or more were mandated to offer customers low-cost options, including payments through RuPay and UPI QR codes.

“It is time that the finance ministry take cognizance of the work done by service providers. Due to the zero MDR rule, merchant acquisition has suffered,” Vishwas Patel, chairman of PCI and director of digital payments solutions provider Infibeam Avenues, told TechCircle. 

MDR, which is charged by the payment service provider as a percentage value of the transaction, was a primary source of revenue for companies that pay to acquire merchants on their platform. 

Patel told TechCircle that the issuance of RuPay cards by banks had also suffered, referring to a study by Ashish Das, a professor at IIT Bombay, which found that only 77 lakh RuPay debit cards were issued by the banks between August 2019 and July 2020, compared to 455 lakh issued between August 2018 and July 2019. 

“We were assured by the ministry that the banks will compensate payment gateway and payment system providers but that hasn’t happened either,” Patel told TechCircle. 

In its submission, the industry body for regulated non-banking payment companies has asked the finance ministry to cap MDR based on the size of the business, as opposed to doing away with the fee.

The PCI has proposed capping MDR at 0.15% of the transaction upto a maximum charge of Rs 100 for UPI transactions, for merchants with an annual turnover of less than Rs 20 lakh. For other merchants, the rate could be capped at 0.30%, it said. In case of RuPay-based transactions, the PCI proposed a cap of upto 0.20% for small merchants and upto 0.60% for others.

Additionally, it has sought relief from tax deduction at source (TDS) for prepaid cards, on par with banks that do not get taxed for issuance of debit cards. 

According to media reports, the Indian Banks’ Association (IBA) has also met the finance ministry on the issue as part of pre-budget consultations.