MDR charges and UPI
The way the Government has pushed the adoption of digital payments has been remarkable. It started with bearing a large part of the cost of Merchant discount rate (MDR charges) which was absorbed by the PSU oil companies while simultaneously worked on popularising the UPI developed by the NPCI. At its start in August 2016, UPI had 21 banks on board which went up to 143 banks today. The UPI transactions have reached from Rs 1.09 lac crore a month in January to Rs. 1.91 lac crore in October.
Maintaining a balance
The ramp-up in transactions have been due to the open architecture of UPI which allowed Paytm, GooglePay, PhonePe to use it effectively while NPCI worked on innovating UPI and create UPI QRs which made it universally acceptable as in the way debit and credit cards. The Government lowering the MDR however, needs to be carefully handled with , as when you lower it too much it takes out the banks or service providers like PhonePe, PayTM.incentive to roll it out and innovate further.
It is precisely what the Government has done with it deciding the there will be no MDR on either RuPay cards (around 500 million in number) or UPI. While insisting firms with a turnover of more than Rs 50 crore to offer Rupay/ UPI for customers to push digitisation, though there is no incentive to push Rupay/UPI now. And with UPI MDR so low at 30 bps it is not as such a deterrent to usage, however in case of low-value transactions it would be better if Government paid for it. It is important after all as with rise in digital transactions more people will come into the formal economy and pay taxes. It also means that RBI and Banks spend less money to manage the printing and circulation of cash. The Government needs to reconsider the wavering of charges and price controls as in case of areas like medicine, which may result in a blow to the industry who was looking to attract people to digital payments adoption.
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