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'Fallacious Logic': Visa Slams Scrapping of Merchant Discount Rate on Card Payments

Visa India country manager TR Ramachandran said banks and other stakeholders incur a cost to put up the payments infrastructure like points-of-sale machines, and they need to be compensated for the same.


Updated:August 19, 2019, 11:42 PM IST
'Digital Transactions to Reach About 1,800 Crore in FY18' (photo for representation, image: Reuters)
Representative image.

Mumbai: Global payments major Visa on Monday hit out against the government for abolishing the merchant discount rate (MDR) on card payments, as the logic of setting up the needed infrastructure sans payment is "fallacious".

Visa India country manager TR Ramachandran said banks and other stakeholders incur a cost to put up the payments infrastructure like points-of-sale machines, and they need to be compensated for the same. The MDR is a commission of up to 2 per cent paid by a merchant establishment to banks which put up the POS machines when she accepts the payment through debit/credit cards from a customer.

According to some policymakers, the rate acts as a disincentive for popularising digital payments. Ramachandran said the card payments save lots of money both for the government and the merchants by way of avoiding or reducing cash handling cost and pointed out that the Reserve Bank of India alone incurs a whopping Rs 26,000 crore in handling cash charges annually.

"...if the consumer, the government and the merchants are saving a lot on handling cash, a sliver of it can be passed on to the people who are building the infrastructure so that they are fairly compensated," he said, speaking at the annual industry conference Fibac.

Stressing that the payment intermediaries do not want stash of money, he said but adequate compensation should be ensured so that every stakeholder has the "skin in the game". "I am a firm believer in low economics but no economics student can believe in no economics," he said.

It can be noted that a part of the MDR also goes to companies like Visa or Mastercard for their role as the payment intermediaries. Ramachandran listed out a slew of examples to justify the need to compensate the stakeholders who invest in building the infrastructure.

Using a parallel from the telecom sector, he said if an operator offers both voice and data for free, who will pay for deploying the network for one and for servicing and maintaining for another, he wondered.

Even sticking the QR code at the merchant establishments costs money and someone needs to be compensated for that as well he said. "I find the logic a bit fallacious because cost is not free," he said, asserting that even the RBI agrees that cost is not free.

He further said if there is going to be no skin in the game, who will deploy these terminals and ensure that they reach the small towns. Finance minister Nirmala Sitharaman in the budget had said business establishments having a turnover of over Rs 50 crore should depend on low-cost digital modes of payment to their customers and "no charges or MDR would be imposed on customers as well as merchants".

The proposal has since been passed by Parliament along with the Finance Bill and the general budget.

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