Budget 2019: MDR scrapping to boost digital payments

BENGALURU: In a move that may give a big boost to Unified Payments Interface-based transactions at merchant locations, the government has proposed abolition of all charges for payments facilitated through these modes at businesses with annual turnover of more than Rs 50 crore. The payments industry cheered the government’s push towards adoption of digital transactions.

Dilip Asbe, chief executive officer, National Payments Corporation of India, said India is set to become an innovation hub for digital payments within the next five years.

Industry executives pointed out that this could push consumers to start making payments through UPI at organised retail outlets where debit or credit cards were commonly used.

“The government will not incentivise digital payments at small merchant locations, since transactions of Rs 2,000 and below are free of cost. With this move the government is targeting card payments at organised retail as it tries to push UPI and Aadhaarbased payments,” said Rajeev Agrawal, chief executive officer, Innoviti Payments which processes card payments for banks.

In her maiden budget speech, finance minister Niramla Sitharaman said that no merchant discount rate (MDR) shall be imposed on merchants who allow their customers to make payments through ‘low cost digital payment modes’. “There are low-cost digital modes of payment such as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT, RTGS, among others,” she said. The minster did not specify which debit cards these would be in her speech.

The government has also suggested a penalty of Rs 5,000 per day till the time the violation continues unless a valid reason is provided by the business.

In another major move, the government has also decided to levy a surcharge of 2% on cash withdrawal of above Rs 1 crore in a year. This could help push a large chunk of payments made by businesses in cash to digital modes. Businesses exempted from this provision include government departments, banks, cooperative societies, business correspondents, ATM operators and others who deal in cash as a part of their business operations.

Ajay Adiseshann, founder of business payments startup Paymate, told ET that it will likely encourage cash payments made to daily workers at construction sites to move to digital payments thereby enabling the lowest section of the workforce to also receive wages in their bank accounts. It could also bring payments made in the logistics sector and the consumer durables sector into the digital fold.

Some experts pointed out that more should have been done to target small value cash payments made by consumers, rather than only targeting business transactions.

“Industry suggestions and various reports had recommended to provide direct GST benefits to merchants for using digital payment options or complete exemptions on digital payments and domestic remittances,” said Naveen Surya, chairman, Fintech Convergence Council, an industry body for all fintech companies.