New Delhi: Finance Minister Nirmala Sitharaman on Saturday said that from 1 January, 2020, businesses with annual turnover of more than ₹50 crore will have to offer low cost digital payment options to customers and Merchant Discount Rate (MDR) will not be levied on either customers or merchants.

Low cost digital payment modes will include options such as BHIM UPI, UPI QR Code, Aadhaar Pay, Debit Cards, NEFT, RTGS, among others. The move is also expected to boost payments via home-grown real-time payments system Unified Payments interface (UPI) at merchant locations, along with RuPay debit cards.

“Department of Revenue (DoR) will notify RuPay and UPI as the prescribed mode of payment for undertaking digital transactions without any MDR. Accordingly, all companies with a turnover of ₹50 crore or more shall be mandated by DoR to provide the facility of payment through RuPay Debit card and UPI QR code to their customers," the finance ministry said in a statement.

MDR is the cost paid by a merchant to a bank for accepting payment from their customers via digital means. The merchant discount rate is expressed in percentage of the transaction amount. It is also applicable for online transactions and QR-based transactions. The amount that the merchant pays for every transaction gets distributed among three stakeholders--the bank that enables the transaction, vendor that installs the point of sale (PoS) machine and the card network provider such as Visa, MasterCard, RuPay.

Payments via digital modes are expected to make transactions for mid- and large-sized businesses more transparent and thereby prevent tax evasion.

Towards faster adoption of digital payments, in the Union Budget announced in July 2019, the Finance Minister had said businesses with annual turnover of more than ₹50 crore should offer low cost digital modes of payment to their customers and the RBI and banks should absorb cost of transactions. "RBI and banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment," Sitharaman had said.

“The latest move of the government to announce zero MDRs for UPI and Rupay for businesses with turnover above ₹50 crores is a positive step to address this consumer concern and we hope that banks and private processors will also find a way to bring their MDR charges to zero by innovating and finding other ways to fund this cost," said Sachin Taparia, Founder and Chairman, LocalCircles.

“We hope that in the future, the government will bring the lower limit for to merchants with ₹1 crore of turnover and that is when we will see digital payments penetrate at massive scale," he said.

However, some industry participants are not enthused with the government’s decision of zero MDR, as they believe it would lead to the collapse of the payments acquiring industry.

“Payment service providers are the infrastructure creators of the digital payment ecosystem both online as well as offline and plus employ millions of people. A zero MDR will kill the industry and will leave no incentive to expand the universe. They should be adequately compensated for creating and maintaining the infrastructure in an already tough economic climate," Dewang Neralla, Chief Executive Officer of Atom Technologies said.

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