Zero MDR : How Will The Payments Industry Survive?
By: Fiaks Publisher
Tags: Payments, Zero, Merchant, Rate, Discount

14-August-2019: Several Founders, Co-Founders, CXO Bankers, CXO Fintech professional & people who participated in the ePanel discussions:

Mr. Anil Bharadwaj V, Co-Founder & CCO at Payswiff

Co-Founder & CCO at Payswiff Mr. Vishwas Patel, Director Infibeam Avenues Limited, Founder CCAvenue Payment Gateway

Director Infibeam Avenues Limited, Founder CCAvenue Payment Gateway Mr. Narayan Rao, Chief Services Officer, Suryoday Small Finance Bank

Chief Services Officer, Suryoday Small Finance Bank Mr. Deepak Chandnani, CEO, South Asia & ME at Worldline by Atos

CEO, South Asia & ME at Worldline by Atos Ms. Saru Kaushal, Country Business Head, Global Corporate Payments at American Express

Country Business Head, Global Corporate Payments at American Express Mr. Rishi Gupta , MD & CEO Fino Payments Bank

, MD & CEO Fino Payments Bank Mr. Sony Joy, CEO Chillr

CEO Chillr Mr. Amrish Rau , former CEO PayU India, Naspers Group

, former CEO PayU India, Naspers Group Mr. Naveen Surya , Chairman Emeritus, Payment Council of India

, Chairman Emeritus, Payment Council of India Mr. Sony A , Head — Digital, South Indian Bank

, Head — Digital, South Indian Bank Mr. Neeraj Chandra, Head of Operations & Technology, Abu Dhabi Commercial Bank

Head of Operations & Technology, Abu Dhabi Commercial Bank Mr. Prasanna Divekar , Former Head NRI Business, Overseas Offices, HDFC Bank

, Former Head NRI Business, Overseas Offices, HDFC Bank Mr. Shashank Chowdhury, Former Executive Vice President-Inclusion Initiative, Vakrangee Software Ltd

Former Executive Vice President-Inclusion Initiative, Vakrangee Software Ltd Mr. Raghu Veer Dendukuri , Product Owner, Intandemly

, Product Owner, Intandemly Mr. Rahul Dayal, Former Senior Vice President & Head-Business Solutions Group Liabilities, cards & BI, RBL Bank

Former Senior Vice President & Head-Business Solutions Group Liabilities, cards & BI, RBL Bank Mr. Kaunain Esmile , Vice President-Country Lead Customer Experience, DBS Bank

, Vice President-Country Lead Customer Experience, DBS Bank Mr. Manish Jeloka, Former Executive Director Wealth Market Product and Sales, Standard Chartered Bank

Former Executive Director Wealth Market Product and Sales, Standard Chartered Bank Mr. Rakesh Watal, Senior Vice President, HDFC Bank

Senior Vice President, HDFC Bank Mr. Avro Mukerji, Investment counselor-NRI Burgundy, Axis Bank

Investment counselor-NRI Burgundy, Axis Bank Mr. Abhishek Mody, Associate Director-Payment & Digital Initiatives, IDFC Bank

Associate Director-Payment & Digital Initiatives, IDFC Bank Mr. Raj K Prasad , Head — GCC & CEO, DIFC Branch at Axis Bank

, Head — GCC & CEO, DIFC Branch at Axis Bank Mr. P B Prakash, Head-Financial Institutions Group, Indusind Bank

Head-Financial Institutions Group, Indusind Bank Mr. Praveen Kumar, Vice President ( Financial Resource, Planning, Technology & New Initiatives) at ACFL Microfinance

Vice President ( Financial Resource, Planning, Technology & New Initiatives) at ACFL Microfinance Mr. Viswadeep Chavali, Vice President, Equitas Small Finance Bank

Vice President, Equitas Small Finance Bank Mr. Deepak Bhartiya, Chief Manager, Digital Payments ICICI Bank

Chief Manager, Digital Payments ICICI Bank Mr. Roopesh Chandran , Director, Business Development, Visa Inc

, Director, Business Development, Visa Inc Mr. Vikas R Panditrao , Co-founder, Forum of Industry and Academic Knowledge Sharing (FIAKS)

, Co-founder, Forum of Industry and Academic Knowledge Sharing (FIAKS) Many other CEO/CXO Bankers & Fintech professionals on FIAKS Forum requested to remain anonymous

Recently the finance minister announced Zero MDR that is no MDR on merchants and customers. Consequently, an important question burned up among FIAKS community was that, Who is covering the cost or is it that the acquiring bank should bear the cost? First, let’s have a glance at what is Merchant Discount Rate (MDR) :

MDR charges are levied by the bank providing the card accepting facility to the merchant and are a discounting factor agreed/bargained amongst them (Debit MDR is fixed by RBI though)

As of today, the MDR is what funds/ sustained the card payment network players acting as a source of funds that they split amongst themselves in the form of interchange income/fees

The following questions were raised up by the members:

Question 1: Is it for offline stores only or for both online and offline?

Question 2: How much will the bank absorb and much will they share with service providers?

In response to this, some members of the community shared their views as follows, Businesses having an annual turnover of over Rs.50 crores shall offer low-cost modes of digital payments such as UPI, Aadhaar Pay, NEFT, RTGS, and no charges shall be imposed on customers or merchants for the same. 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

An overview of Budget 2019 proposal: [1]

In order to achieve the Government’s mission to move towards a less-cash economy to reduce generation and circulation of black money and to promote digital economy, it is proposed to insert the following sections in Income Tax Act, 1961

Section 269SU : Every person, carrying on business, shall, provide facility for accepting payment through the prescribed electronic modes, in addition to the facility for other electronic modes of payment, if any, being provided by such person, if his total sales, turnover or gross receipts in business exceed fifty crore rupees during the immediately preceding previous year.

Every person, carrying on business, shall, provide facility for accepting payment through the prescribed electronic modes, in addition to the facility for other electronic modes of payment, if any, being provided by such person, if his total sales, turnover or gross receipts in business exceed rupees during the immediately preceding previous year. Section 27 IDB: The failure to provide the facility for electronic modes of payment prescribed under section 269SU shall attract a penalty of a sum of five thousand rupees, for every day during which such failure continues. However, the penalty shall not be imposed if the person proves that there were good and sufficient reasons for such failure. Any such penalty shall be imposed by the Joint Commissioner.

This amendment will take effect from 1st November 2019. Further, it is proposed to make a consequential amendment in the Payment and Settlement Systems Act, 2007 so as to provide that no bank or system provider shall impose any charge upon anyone, either directly or indirectly, for using the modes of electronic payment prescribed under section 269SU of the Income-tax Act. This amendment will take effect from 1st November 2019.

The key highlighting drawback of this proposal is that it does not specify the modes of electronic payment

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