15/07/2019 - Indian economy

KEY POINTS

·        In recent budget, the government has mandated that neither the customers nor the merchants will have to pay the so-called Merchant Discount Rate (or MDR) while transacting digital payments.

·        Of course, it is good news for both customers and merchants because their costs of digital payments come down. However, the payment services providers are now complaining.

·        Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is the sum total of all the charges and taxes that a digital payment entails. For instance, the MDR includes bank charges, which a bank charges customers and merchants for allowing payments to be made digitally.

·        Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.

·        If customers don’t pay and merchants don’t pay, some entity has to pay for the MDR costs, RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment.

·        Contrary to public perception, the MDR has not been made zero. However, if banks pay for the MDR it will adversely their likelihood to adopt the digital payments architecture.

·        Moreover, many payments providers apprehend that the banks will find a way of passing on the costs to them. In turn, this will negatively impact the health of a sector that needs nurturing.

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