MAHARASHTRA: According to experts, the Reserve Bank of India‘s (RBI) decision to enable credit cards to be linked to the Unified Payments Interface (UPI) network will put to the test the zero-merchant discount rate (MDR) benefits provided to domestic payment systems.
The zero-MDR policy has been credited with the amazing increase in UPI payments, with retailers choosing UPI payments over credit cards, they claimed. MDR is a fee paid by retailers to banks, card networks, point-of-sale providers, and payment gateways for offline transactions and online purchases.
MDR on credit cards is typically 2% to 3% of the transaction value.
RBI deputy governor T. Rabi Sankar said on Wednesday that it is too early to talk about the pricing structure for UPI and credit cards, and that the RBI “will see how it would be charged.
” MDR charges have not been applicable for transactions via UPI and the indigenous card network, RuPay, since January 2020, and the payments industry has been vocal in its opposition to the government policy and has repeatedly requested a rollback, believing that it will deter investment in payment infrastructure.
“It’s an exciting development, but ecosystem players need greater clarification,” Vishwas Patel, executive director of Infibeam Avenues Ltd and chairman of the Payments Council of India, said.
“Giving credit involves a cost of funds for issuing banks, whereas MDR in UPI transactions is nil” (PCI). According to Patel, the council is in contact with RBI officials as well as the National Payments Corporation of India (NPCI) to determine how the plan may be executed while being financially viable.
PCI had asked the government in January to reverse the zero MDR policy or provide the industry with $4,000 crore in incentives to close the deficit. The adoption of credit card payments via UPI must be strictly monitored because merchants must pay MDR under current legislation.
According to a Citi Research note dated June 8, it is unclear whether new MDR guidelines for credit card payments on UPI will be released, while credit card payments on other networks would continue to be subject to MDR. Linking credit cards to UPI, according to Citi Research, might raise card penetration to digital payments,
which has been dropping due to UPI’s popularity, and could pave the way for better monetization of mobile or UPI transactions for payment businesses.
According to analysts at Kotak Institutional Equities, the merchant must be informed that there is a risk of charges being taken when a credit card is used on a UPI QR code. A traditional network is thought to require merchants to consent to both debit and credit transactions, however with UPI, merchants have approved UPI-based transactions.
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