Banks find zero-fee RuPay unattractive


Mumbai: The government’s decision to do away with merchant fees on all payments using RuPay debit cards appears to have had some unintended consequences. There are indications that banks are choosing to issue Visa and MasterCard, which do not face any restriction on fees unlike RuPay. TNN
According to an IIT-Bombay study, banks prefer to issue cards of Visa and MasterCard rather than lose money on transactions made using RuPay cards.
In a year since early September 2018, there had been a net issuance of about 465 lakh RuPay debit cards, and about 428 lakh accounts were added under Pradhan Mantri Jan Dhan Yojana (PMJDY). In contrast, for the corresponding period this year (early-September 2019 through end-August 2020), there was a subdued issuance of about 65 lakh RuPay debit cards though about 363 lakh PMJDY accounts were added.
“It alarms to see an expanding gap between PMJDY accounts added and RuPay debit cards issued. Unless there are other extraneous causes, a possible cause for such a trend could be that banks have deliberately moved away from RuPay and promote a card scheme, which generates more revenue for them,” said Ashish Das, a professor of statistics at IIT-Bombay who has authored the report.
The reason for the shift is simple economics. While the administered MDR pricing for RuPay turned zero following the ban, it continued to be 0.4-0.9% of the transaction value for MasterCard and Visa. This fee is shared between the bank, which issues the card and the lender which installs the swipe machine, with the card-issuing bank getting the lion’s share.
As a result, while on one hand., the year-on-year growth of RuPay debit cards issued under the PMJDY was shrinking, on the other hand, there was a sharp uptick in y-o-y growth of overall debit card outstanding. “This reflects an implicit increase in y-o-y growth of MasterCard/Visa debit cards. We call this the whiplash of the zero MDR policy,” Das said.
The report ‘Merchant transactions through debit cards — costs and prices’ recommends that merchant discount rate be allowed but subject to a cap of 0.6% on all e-commerce transactions and with large merchants. For smaller merchants (turnover below Rs 2 crore) and low-value transactions (below Rs 2,000), the report prescribes capping the MDR at 0.25%.
The removal of charges also did not do anything to boost transactions in the domestic network. RuPay debit cards were used for payments in point of sale machines and online for transactions worth Rs 16,728 crore in January 2020, when the MDR ban came into effect and transactions have not touched the same monthly level since. The average monthly transactions for the current fiscal works out to less than Rs 13,000 crore.

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