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Digital Payment Companies Seeks Compensation for losses incurred on Online Payment Processing

Payments are made using different Instruments. Different Instruments used such as Cash, Cheques, etc. however online Digital Payment are different from that of these instruments. Digital payment is a word used to describe an umbrella under which there are a bunch of modes of payments. There is no standard definition for Digital Payment or e-payment, but it can be explained by the different methods used for making payments.

Dimension

The subject matter is complex, but it can be categorized into two different dimensions:

1. The nature of the payment Instrument

Digital payment can be categorized into two different ways:

• Narrow choice – Paper vs. Non-Paper: Instruments which are based on paper- authorization like cheques, traveler’s cheque, money orders. These are regarded as non-digital. Apart from these all the other instruments are “digital”
• Broad Choice – Cash vs. Non-Cash: All the instruments other than cash are termed as digital.

Budget 2019 for Zero MDR

Narendra Modi- led Governments has constantly focused to encourage cashless economy and digitalize India. One of such historic initiative was “Demonetization” which was announced dated 08.11.2016. Ever since then, to make it more digitalize, Government has announced penalty for use of cash beyond a certain limit and introducing multiple incentives for doing cashless transactions. For example, the Government of India has proposed to levy TDS of 2% on cash withdrawn more than INR 1 Crore in a year from ATM, Banks or post offices to discourage the use of cash for making payments. The big establishments having an annual turnover of INR 50 Crore has to offer its customers for low-cost digital payment methods such as BHIM UPI^[1], Debit Cards, RTGS, NEFT, etc.

In the Budget 2019-20, finance minister Ms. Nirmala Sitharaman has announced that customers need not pay any Merchant Discount Rate for processing any digital payment. There would be from now onwards would be no charges levied on online Digital Payment. The government has waived away the Merchant Discount Rate (MDR), a charge which was born by Merchants during online payments.

Read More: SEBI Guidelines for Making Public Offer

PCI Seeks Redressal for the Losses Due To Digital Payment

Payment Council of India (PCI) is an industry body that is representative of about 100 non-banking online Digital Payment Service Providers (PSPs). PCIs seek compensation from the Government for the losses incurred while processing online payment, in the debate of “ZERO” charges on online payments.

PCI in letters addressed to:

• Union Finance Ministers
• Ministry of Electronics & Information Technology (MeitY)
• India Banking Regulator

For the creation of a dedicated fund established with the sole purpose of redressing losses incurred due to online Digital Payment. With the MDR being waived off in the Union Budget 2019, PSPs would bear the losses with their main sources of revenue.

Favor vs Against

With the introduction of Zero Merchant Fess, this has led to dividing the industry into two groups. One group approves the decision of Government to waive off merchant charges; on the other hand, some protest the decision by seeking compensation for losses.

• As per Mr. Vijay Shekhar Sharma, founder of Paytm considers this decision of Government as beneficial to expand the reach of digital payment and to encourage banks to onboard merchants.
• On the other hand, CEO of CC Avenue Payment Gateways, Mr. Vishwas Patel is leading the drive to seek Redressal from Governments. 
• With this zero Merchant Discount Rate, it will be very difficult for these non-banking Payment Service Providers to sustain in the market. Thus, that’s why they have sought at least minimum charges to maintain business viability.
• Survival of the PSPs will be at stake if until and unless they are provided with a 25-basis point margin.

RBI Role in Promoting Digital India

• Reserve Bank of India has promoted the cash-less economy by announcing the customer-protection measures to promote and improve the confidence of customers towards e-payments.
• RBI has announced customer liability will be reduced in case of fraudulent digital transactions and set up a redressal mechanism for consumers.
• As per RBI, digital transactions have gone up 796.7 million in 2016 to 3324.4 in the current year. Value in monetary terms is increased from INR 100 Trillion to INR 250 Trillion in the current year.
• Focus on digitalizing India is not new. The Ministry of electronics has launched a scheme earlier of reimbursing MDR charges on the transactions made up to INR 2000 through digital methods.
• RBI issued circular dated 1^st July 2019 waiving off the charges on NEFT and RTGS transactions.
• RBI set up the Nandan Nilekani Committee to recommend the steps for enhancing the digital payments is another highlight of RBI’s intention to accelerate Digital India.

Suggestions of Nandan Nilekani Committee       

Here are certain suggestions were given by RBI Committee to enhance Digital payments in India:

• Regulate growth: there is an establishment of the level playing field by introducing “incentives for all or none”. It helps in encouraging state-owned, domestic & global players giving the customers options and alternatives by considerable success in driving digital payments.
• Let Payments profit: many countries have successfully rolled out the AIDF linked project to expand digitalization. Acceptance Infrastructure Development Fund (AIDF) is funded by payment players along with subsidizes infrastructure cost and it motivates banks.
• Make benefits tangible and monetary: cash is no-cost payments method. Thus, digitalizing should be encouraged by making these online payments cost-free and hustle free. Online Transactions also help in curbing corruption. RBI has given certain tangible benefits such as Income Tax Incentives for Online Transactions.

FAQs

What is MDR?

MDR stands for Merchant Discount Rate is the price that is paid by the Merchants to the Banks or Payment Service Providers for the digital payments and online settlement of transactions.

What are Low-cost digital modes of payment?

Finance Minister said during budget 2019, no Merchant Discount Rate (MDR) will be charged from merchants. This will allow the customers to make use of Low-cost payment methods such as BHIM UPI, debit cards UPI-QR Code, etc.

What are the benefits of large retail outlets?

While there are required more clarity required from Government’s side, so far it is assumed that large retail players such as Big Bazaar will be benefited from this No MDR Scheme. As they would be pocket more money by not paying MDR on the amount received through UPI.

Read our article:Digital Payment System & UPI Payment Gateway