With a view to driving digital transactions, banks have suggested to the government that smaller vendors be on-boarded as peers, thereby sparing them the merchant discount rate (MDR).
Banks have asked the government to consider giving small vendors the status of peers for QR-based Unified Payments Interface (UPI) transactions. If the suggestion is implemented, the eligible merchants will not need to shell out the MDR, or the fee charged by banks for offering payment-acceptance infrastructure.
The MDR for UPI transactions stands at 0.25% for transactions under Rs 1,000 and 0.65% for all other transactions.
An executive with a large private sector bank pointed out that small merchants were averse to transacting digitally because of the high MDR. “In UPI, conceptually, a small merchant can also be on-boarded as a peer. These will be vendors below a certain threshold, not the bigger ones,” the executive explained.
While UPI transactions have grown manifold since the launch of the payment mode in 2016, peer-to-peer (P2P) transactions account for an overwhelmingly large share of the pie. In December 2018, a total of 620 million transactions worth `1.02 lakh crore were made using the UPI channel.
However, of these, only between 10-12% are merchant payments, industry players say.
Most merchant UPI transactions are made on e-commerce platforms, with small store fronts remaining out of reach for banks.
Banks say that it is not only expensive for them to tap the very small merchants, but it is also unremunerative in the absence of consumers who are savvy enough to make QR-based payments using their smartphones.
“The question with QR is only as follows: if the merchant accepts QR, the customer on the mobile app should also be able to make the payment. We haven’t reached where China has, where virtually everybody – whether merchant or consumer, is on QR,” a banker said.
In December 2017, the government had agreed to pick up the tab for the MDR payable on all debit card, UPI and Aadhaar-enabled Payment System (AePS) transactions up to Rs 2,000 for a period of two years with effect from January 1, 2018. It was estimated that the MDR to be reimbursed to the banks in respect of transactions less than `2,000 in value would be Rs 1,050 crore in fiscal year 2018-19 and Rs 1,462 crore in FY 2019-20.
The Reserve Bank of India (RBI) has set up the Nandan Nilekani committee to encourage deepening of digital payments. Industry watchers say the subsidies and discounts are not being channelled quickly enough to the beneficiaries. For example, banks have been accused of delaying reimbursements of merchant discount rates (MDR) to merchant aggregators and acquirers. While the absolute values may be not be large since these are small-value digital transactions — the estimated MDR in 2016-17 was Rs 3,000 crore — the delay in reimbursements nonetheless needs to be addressed.
The larger banks appear to be afraid to push digitisation, especially in semi-urban and rural geographies; they have been consistently refusing to raise the inter-change fee which is to be paid to smaller, new-age lenders that are installing micro-ATMs. Unless this happens, there is no incentive for lenders that are installing micro-ATMs, experts say.