India’s own card payment network, RuPay, is suffering because of the discriminatory pricing structure by the central government, a study by the Indian Institute of Technology, Bombay, has found.
To bring RuPay at the same level as the other card networks, the study has suggested a MDR cap of 0.6 percent for debit card transactions.
The study, Merchant transactions through debit cards – costs and prices, conducted by Professor Ashish Das of the Mathematics department, has found less RuPay debit cards being issued by banks from September 2019 to August 2020.
Only 65 lakh debit cards have been issued in the period, compared to 4.6 crore cards in the corresponding period of the previous year, the study found.
More Jan Dhan accounts, less RuPay cards
Das argues that this happened when 3.6 crore new Jan Dhan accounts were opened this year, compared to 4.2 crore in the previous year.
Jan Dhan accounts are zero-balance accounts opened by government banks for poor citizens. They always come with a RuPay debit card.
Even while more Jan Dhan accounts have been opened, less RuPay cards have been given out, showing that banks could be moving away from RuPay card issuance.
Nil merchant discount rate the hindrance
The study said that this has happened since merchant discount rate or MDR on RuPay debit cards have been made ‘nil’ by the finance ministry in the last Union Budget.
Banks cannot make any money for transactions on RuPay cards, whereas there is 0.4 to 0.9 percent MDR charged on Visa and Mastercard transactions.
MDR is the price merchants pay to their banks for accepting digital payments from their customers.
Mastercard, Visa gaining
Further, the report has also found that RuPay card issuance has fallen sharply, post September 2019, when the mandate kicked in, whereas the overall number of debit cards in the country has gone up. This means other card schemes like Visa and Mastercard might be gaining from the process. Das refers to it as the whiplash of the zero MDR policy.
“The present discriminatory structure has actually impeded our country’s ‘Make in India’ initiative, and inadvertently promoted ‘Made in USA’ products,” he added.
The report also talks about the 1,500 government-to-consumer touchpoints where citizens make digital payments to various government entities, the situation is such that for Visa and Mastercard, the government will pay whereas the home-grown alternative gets paid nothing.
While card payments are expensive, the report talks about QR Code payments which need to be encouraged since they can be adopted by merchants almost free of cost.
Even banks do not need to separately service these merchants, since they can just generate a QR code by themselves and accept UPI payments like inter person transactions.
MDR cap of 0.6 percent suggested
To come out of this conundrum, Das has suggested an MDR cap of 0.6 percent for all ecommerce payments. For offline card payments, merchants with an annual turnover of above Rs 2 crore should also pay an MDR of 0.6 percent.
For smaller merchants, an MDR of 0.25 percent for transactions upto Rs 2,000 should be implemented, and it should be 0.6 percent again for transactions above Rs 2,000. The overall ceiling of all MDR could be set at Rs 150 as an absolute figure.
Further, to encourage digital payments, cash withdrawals beyond a certain number of times can be charged and the pricing can be decided by the central bank for the same, the report said.
Overall, Das has suggested that there is a need for a massive thrust on usage and adoption of BHIM UPI payments and QR-code based payments at merchant outlets.