HomeFinance NewsRBI proposes discussion paper on digital payment charges: fintech cos, Paytm may see impact

RBI proposes discussion paper on digital payment charges: fintech cos, Paytm may see impact

RBI governor Shaktikanta Das on Wednesday said the central bank will soon release a discussion paper on digital payment charges to ensure they are both affordable to users, and economically remunerative to providers.

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By Ritu Singh  December 8, 2021, 5:00:33 PM IST (Published)

RBI proposes discussion paper on digital payment charges: fintech cos, Paytm may see impact
The Reserve Bank of India (RBI) will soon release a discussion paper on digital payment charges to ensure they are both affordable to users, and economically remunerative to providers, governor Shaktikanta Das said on Wednesday.


While announcing the monetary policy decision of the central bank, governor Das said, "There have, however, been some concerns on the reasonableness of various charges incurred by customers for digital payments through credit cards, debit cards, prepaid payment instruments (cards and wallets), Unified Payments Interface (UPI) and the like. It is proposed to release a discussion paper on various charges in the payment system to have a holistic view of the issues involved and possible approaches to mitigating the concerns so as to make digital transactions more affordable."

RBI will come out with a discussion paper on digital payment charges in a month’s time. Entities involved in providing digital payment services incur costs, which are generally recovered from the merchant or the customer or is borne by one or more of the participants. "While there are both advantages and disadvantages of customers bearing these charges, they should be reasonable and should not become a deterrent in the adoption of digital payments," RBI said.

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The discussion paper will cover all aspects related to charges involved in various channels of digital payments such as credit cards, debit cards, prepaid payment instruments (cards and wallets), UPI, etc. The paper will also seek feedback on issues related to convenience fees, surcharging, etc., and the measures required to make digital transactions affordable to users and economically remunerative to the providers, RBI said.

Impact of Proposed Paper

"The payment charges across various payment systems vary, thereby influencing the usage. Small ticket payments are preferred on systems with low charges, while high ticket payments are preferred on payment systems like credit cards even at higher charges. Harmonisation of payment charges at lower rates across systems could spur up the overall digital payment volumes further, thereby making it beneficial for users as well as service providers, said Anil Gupta, sector head financial sector ratings at ICRA.

Industry players CNBC-TV18 spoke to believe this may lead to a cap on charges levied by players on various channels of digital payments, especially in cases where there is no cap currently. For instance, the merchant discount rate or MDR levied on debit cards, except for Rupay cards, is capped at 0.90 percent. For Rupay debit cards, the MDR is zero. However, there is no such cap on wallet transactions or credit cards. MDR charges on credit cards could range from 1.5 -3.5 percent in some cases, whereas MDR charges on wallet transactions could be upwards of 2-2.5 percent. A cap on these charges could hurt the revenues of the players involved.

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Similarly, there is zero MDR charge on UPI transactions currently, which means players can’t charge commissions and don't make any money on UPI-based transactions. Industry players have been asking for this zero-MDR rule to be done away with for a while, and this may also be examined by RBI via the proposed discussion paper.

Merchant Discount Rate refers to the rate at which the merchants are charged for accepting payments made via credit cards, debit cards, net banking, and digital wallets.

"If you look at today whether it is a credit card, debit card or UPI, the consumer doesn’t incur any charge… It’s the merchant who bears the cost in terms of MDR…Usually, in an MDR, the issuing bank takes 60 percent, and the balance is shared between the network provider (Visa, Mastercard etc) and the acquirer. Now issue with wallets and the PPI instruments is that they are charging 2 to 2.5 percent and in some cases higher, it is not regulated, and this is one area clearly where we believe RBI will bring down charges. This is very negative for the fintechs in the payments space. PayTM for example as of FY21 has 70 percent of gross revenues coming from payments…A big risk here if wallet charges are regulated and reduced," Suresh Ganapathy of Macquarie said in a note.

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"We believe, the biggest risk is for fintech companies, where clearly charges on PPI and wallets are likely to reduce, thereby affecting revenues further… Any further caps on payment take-rates will negatively impact Paytm's already weak payment margins. Paytm's net payment margin was 4bps in 2QFY22 (vs 7bps 1QFY22). Caps on credit-card MDRs could also impact spend-based fee income for credit-card businesses of banks and SBI Cards & Payment Services," Macquarie said in its note.
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