The Unified Payments Interface or UPI finds itself in an unenviable situation, with Finance Minister Nirmala Sitharaman telling banks handling payments through RuPay cards and UPI not to charge merchant discount rates or MDR. This will apply to all companies with a turnover of Rs 50 crore or more.
This will mean these digital payments companies will be left with hardly any revenue and many of them may decide to even shut shop, according to the Chairman of the Payments Council of India, Vishwas Patel, in a statement on behalf of the Council after the FM issued instructions to the banks.
He said this move by the government can stop further investments in the digital payments business and suppress innovation in the field. According to the council, the charges being collected from the merchant establishments must be borne by the government if it is keen on increasing the proportion of digital payments.
Vishwas Patel said that the government’s decision will have a negative impact on the payment ecosystem. Many of these companies may cut down on their manpower, thereby resulting job losses, a sensitive issue to any government in power.
The crux of the issue is that the digital payments handlers have spent capital in acquiring merchant establishments (MEs), who are given the point of sale (PoS) machines to accept digital payments. Some of the banks even help MEs with extra benefits like extending a line of credit for their working capital based on their record of payments collected over a period.
From the RuPay credit cards perspective, there are 500 million plus cards in circulation. Millions of transactions take place on a daily basis. Though a lot of automation has taken place in handling these massive transactions, the infrastructure to handle these has cost the institutions a lot of money.
The government could put in place a regime where MDR rates are more rationalised and some benefits passed on to the merchant establishments for accepting payments digitally instead of by cash. This would have been a win-win situation for all stakeholders. A few committees constituted by the government also reportedly proposed something on these lines.
Under the present circumstances, many players may start pulling out the PoS machines and try and reduce their exposure, which is opposite to what the government intended.