Digital Payments To Get Boost As NPCI Slashes MDR Charges

Come October and the digital payment landscape in the country is expected to grow at much faster rate than anticipated. The digital payment sector is gaining momentum and is projected to grow at an exponential rate. Of the existing digital payment users 81 per cent prefer the medium over other non-cash payment methods like cheques or demand drafts. Online shopping, payment of utility bills (like electricity, mobile bills and water bills) and movie tickets are the three things that an Indian user primarily pays for through digital platform.

This is going to get further momentum as the National Payments Corporation of India (NPCI) said the Bharat Interface for Money (BHIM) Unified Payment Interface (UPI) merchant discount rate (MDR) for large ticket transactions has been capped at a maximum of Rs 100 and made zero at offline merchants for transactions up to Rs 100.

According to NPCI’s notification, MDR has been revised to 0.30 per cent with a maximum cap of Rs 100 per transaction. MDR is the commission charged by a bank providing infrastructure like payment gateways and others; to the merchant to accept payments, 

Currently, MDR is capped at 0.25 per cent for transactions up to Rs 2,000 and at 0.65 per cent for transactions above Rs 2,000. Further, MDR for offline merchants, where transactions are done through QR Scan and Pay, will be zero for transactions up to Rs 100. The new MDR rates will come into effect from October 1, 2019.

Dilip Asbe, MD & CEO, NPCI, said the Zero MDR for transactions up to Rs 100 and increased limit for P2PM (peer-to-peer merchant) category (small merchants) will help faster migration from cash to BHIM UPI.

“The lower MDR will encourage all categories and types of merchants to deploy the asset-lite acceptance infrastructure (BHIM UPI QR code) to grow its digital footprint across the country.

“We envisage this reduction in MDR will encourage merchants to start accepting BHIM UPI and grow the volume on merchant transactions multifold,” said Asbe.

According to a report by Google and Boston Consulting Group (BCG), the Indian digital payments industry is estimated to touch $500 billion by 2020, contributing 15 per cent to the country’s GDP.

BHIM is an mobile app that lets customers make simple, easy and quick payment for transactions undertaken by them using a UPI, developed by NPCI. Customers can make instant bank-to-bank payments and pay and collect money using their mobile number or Virtual Payment Address (UPI ID).

According to NPCI, UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing and merchant payments into one hood. It also caters to the ‘Peer to Peer’ collect request, which can be scheduled and paid according to requirement and convenience.

An interesting angle to India’s digital payment story is that it is going to be dominated by micro transactions (tractions of value lower than Rs 100). In fact, 50 per cent of person-to-merchant transactions are to be under Rs.100, stated the Google-BCG report. Alternate digital payment instruments like digital wallets, UPI, payment banks, Bharat QR are expected to grow fiercely and estimated to double their contribution to 30 per cent in the digital payment industry, the Google-BCG report said.