Zero MDRApprox Read Time: 5 minutes
In News: (Zero MDR)
- To promote digital payments, the FM Nirmala Sitharaman has announced that digital transactions made using RuPay credit cards or UPI QR codes will not face additional charges for merchants or customers from the beginning of next year.
- In the budget speech in July, the Finance Minister had listed “BHIM UPI, UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT, RTGS, etc.” as the low-cost digital modes of payment which could be offered without the imposition of MDR (Merchant Discount Rate).
- At that time, the Payments Council of India (PCI) — an industry lobby group — had said that MDR waiver would hurt companies in the payments system.
- It argued that the cost should be borne by the government instead of banks, which would have no incentive to promote digital payments without MDR revenues.
Details of the announcement:
- The government has already amended two laws — Income Tax Act and the Payments and Settlement Systems Act, 2007 — to give effect to these provisions.
- Department of Revenue (DoR) will soon notify RuPay and UPI as the prescribed mode of payment for digital transactions without any Merchant Discount Rate (MDR).
- Accordingly, all shops, business establishments and companies with a turnover of Rs 50 crore or more will be mandated by DoR to provide the facility of payment through RuPay Debit card and UPI QR code to their customers.
- 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.
- Further, all banks will start a campaign to popularize RuPay Debit card and UPI in order to strengthen the digital payment eco-system and move towards less-cash economy.
What will be the Impact?
- Indigenously developed digital payment mediums like RuPay and BHIM UPI will now have an edge over the payment gateway promoted by foreign companies, including VISA and MasterCard.
What is Merchant Discount Rate (MDR)?
- MDR is the cost paid by a merchant to a bank for accepting payment from their customers via digital means.
- It is the sum total of all the charges and taxes that a digital payment entails and is expressed in percentage of the transaction amount.
What is Unified Payments Interface (UPI)?
- Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
- The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.
- In 2009, RBI had asked the Indian Bank Association to create a non-profit payment solutions company which will design an indigenous payment card.
- RBI in its vision paper 2009–12 on payment systems in India said that the need for such a system arises from the absence of a domestic price setter, as 90% of credit card transactions and almost all debit card transactions are domestic in India.
- This absence, caused the Indian banks to bear the high cost for affiliation and the connection with international card associations like Visa and Mastercard, resulting in the need for routing even domestic transactions through a switch located outside the country.
- The solution was expected to offer state-of-the-art technology that is secure, robust, scalable, simple and cost effective meeting the requirements of having domestic, open, multilateral system of payments.
- RuPay, was conceived and launched by the National Payments Corporation of India (NPCI), as an Indian card scheme, in March 2012.
- It facilitates electronic payment at all Indian banks and financial institutions.
- Further, NPCI maintains ties with Discover Financial, JCB to enable RuPay card scheme to gain international acceptance.
- The cost per transaction is low with RuPay compared to the foreign card schemes viz. Visa and Mastercard.
- National Payments Corporation of India (NPCI), is an umbrella organization for operating retail payments and settlement systems in India.
- It is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.
- Considering the utility nature of the objects of NPCI, it has been incorporated as a “Not for Profit” Company with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.