Payment aggregators write to NPCI expressing their dissatisfaction with banks' refusal to share subsidies

21 Jun 2022 , 08:53 AM

According to media reports, Payment companies have complained to the National Payments Corporation of India (NPCI), an umbrella organization for all retail payment systems in India, that banks are keeping Rs700 crore of the Rs1,500 crore allocated in the budget. The payments companies allege that not sharing the subsidies has prevented them from connecting the last mile of state-promised earnings.

The subsidies were offered by the Centre last year in exchange for a waiver of the Merchant Discount Rate (MDR) levies.
Nirmala Sitharaman, the Union Finance Minister, launched a Rs1,500 crore fund to help India’s digital payments industry grow faster. This was seen as making up for her previous budget’s MDR waiver on utilizing the Unified Payments Interface (UPI) and RuPay cards.

Payment aggregators permitted a 15-basis point subvention on small-value digital transactions – MDR. A basis point is equal to 0.01 times a percentage point.

Currently, the cost of digital payment services such as switching costs or interchange fees is absorbed by one or more payment system participants, is passed on to businesses via the MDR, or is eventually charged to the customer as additional charges.

In its newly issued Payments Vision 2025 paper, the Reserve Bank of India (RBI) stated that it will conduct a comprehensive examination of all areas relating to costs involved in various channels of digital payments.

While the use of electronic payments has increased, there are worries about their long-term viability. According to RBI data, total digital payments increased by 216% in volume and 10% in value in March compared to the previous year.

Paper instruments such as checks, on the other hand, saw a dramatic drop in use during the period, with their proportion of total retail payments falling from 3.83% to 0.88% in volume and from 19.62% to 11.47% in value.