Payment Companies Split Over Card Fee
The decision of RBI to limit charges that minor stores will give to banks on debit card payments has resulted in a quarrel on how the charges are distributed. These charges are dubbed as MDR (merchant discount rate) since they are inexpensive from the money transported to the account of the shopkeeper.
On end are debit card issuing banks that receive a huge share of the MDR backed by payment systems such as MasterCard, Visa, and Ru-Pay. And on the other end, are payment firms that enroll vendors and set up point of sale terminals in support of lenders. For debit consumers, the agreement of this row will determine whether kirana shops begin taking card transactions.
In an effort to get tiny stores to allow card payments, last week the RBI reduced the MDR to 0.4% for companies with an income of under Rs 20 Lakh. While the RBI has made a decision that the seller will give less, it has not hindered on the allocation of the charges. Traditionally, the allocation has been in favor of card issuers with almost 70% of the MDR being charged as interchange payment. Vendor acquirers are now up in arms claiming that there will not be inducements to install more terminals if the previous way of fee allocation carries on.
Banks issuing card justify higher interchange partially to wrap incentives and other cash back they offer. They claim that card charges have never been prevention in approval and it is the behavior that requires to be altered. Banks issuing card claim that this is the purpose why even in stores that freely accept cards in bulk, payment is in cash in spite of 80 Crore debit cards.
Vendor acquirers have not been in a place to give their best in this tussle since they set up machines in support of banks. For example, network of First Data, the merchant acquirers, comes below ICICI Bank (as the transaction is processed via a bank). In addition, some of the big banks issuing debit card such as SBI and HDFC Bank have in-house vendor acquiring departments and are not getting into this war.
Until demonetization, MDRs for debit cards were permanent at 0.75 % for payments of almost Rs 2,000 and 1% for payments more than Rs 2,000. After demonetization, the MDR was lowered to 0.25 % for payments up to Rs 1,000. PayU is one of the biggest vendor acquirers in the online sector.