The government abolished MDR on transactions using RuPay debit cards and Unified Payments Interface (UPI) from January 1, 2020. But banks were allowed to impose MDR – 0.4-0.9% – on merchants for transactions using Mastercard and Visa debit cards. Since then, the issuance of RuPay cards has been trending down. The discriminatory approach will kill RuPay and UPI. An across-the-board uniform MDR – 0.4-0.5% – makes eminent sense. The government and the RBI must pool money to foot the cost borne by banks and non-banking payment services firms that create the digital payment infrastructure.
Around 50 lakh merchants accept digital payments by having a point-of-sale machine, and over 5 crore by means of the QR code by the UPI. The annual cost for banks and fintech firms to maintain this infrastructure is estimated at over ₹5,000 crore. Of course, when digital payment volumes go up, the cost per transaction will be lower, but not disappear. The cost must come out of MDR that is shared by three parties: those that deploy the QR code or swipe machine to receive payments into an account linked to the merchant, the payer’s bank and the operator that allows the banks to connect to each other and tally the payments.
Zero MDR means a cost for companies that distribute the QR codes, signing up the merchants for digital payments. It will remove the incentive to spread digital payments. Digital payments increase transparency, helping tax collections, and spare the RBI the cost of printing and moving cash. We need a uniform MDR.