Does offering Zero MDR to Merchants a viable move for Banks / Payment Aggregators? What can Government do to make this a sweet deal?

Remember reading about NEFT, that is made free few months earlier, when many thought NEFT will be Free of Cost, but what the Government meant then is that, NPCI waived off the Charges it used to collect from Banks, and it depends on respective Bank’s Board, to decide whether they will make NEFT as a Free Service, or will they simply pass on the received fee waiver, as a reduced service fee to their Customers.

As per the recent announcement of the Finance Minister of India Shri Nirmala Sitharaman, MDR is not going to be collected on UPI & Rupay based digital transactions, from January 01, 2020.

Is this a Viable Move? Can Banks & Payment Aggregators thrive? What makes the Government to think this way?

It’s partly Yes/No.

It’s Yes because, Government is seriously intending to increase the Digital footprint in the Country, thereby giving the opportunity to Banks to Lend & Earn, thereby be able to pass some of it, to compensate the costs / investments of Payment Companies, for their support in the last mile.

It’s No because, Payment Companies are not inclined to wait for their dues, while banks feel like giving away a part of their hard earned money to the Payment Companies.

Any Better Solution?

While Payment Companies and / or Banks are inclined to compete and thereby embrace low cost service models to their customers, they are not towards offering a Zero MDR scenario. The solution is straight forward, Let Government take the cost and compensate both Banks and / or Payment Companies, all based on who facilitated a particular digital transaction, irrespective of the turnover capacity of the Merchant (i.e., Businesses of All Capacities who are registered as Merchants in the Digital Payment Ecosystem), who will receive the Settlement.

How does Government benefit, if it invests in the digital payment ecosystem, by compensating both Banks & Payment Companies, while Zero MDR is offered to All Merchants (irrespective of > 50 Crore Turnover Clause)?

  1. Since Government will be paying a Wholesale price for the facilitated transactions to Banks / Payment Companies, this is the opportunity for Banks / Payment Companies to Do More and Earn More, which means, more Awareness Campaigns will happen in the Last Mile, and People over there be given the Opportunity to experience Digital Payments, thus achieving Government’s goal of making India a Digital majority Economy, while also achieving Financial Inclusion in a realistic way.
  2. Government can introduce Real-time Taxation and entrust entire country’s tax collection responsibility to different Bank & Payment Company Consortium, that gives itself the opportunity to simplify taxation, in the form of Transaction Tax, that can potentially supercede Income Tax, GST & Property Tax.
  3. Black Money Can be Eradicated, by making all the means Non-viable/Non-Profitable, while Accountability happens to be at the Core.
  4. A thriving Digital Payment Ecosystem needs a Scalable National Payments Grid with a tentative capacity of 2,00,000 Transactions per Second, and that in turn will be used by Individuals, Businesses, Organizations of all kinds, along with the Government.


I personally expect the Government to analyze then realize the benefits, by taking Pro Digitization & Real-time Taxation Policies. On other hand, I wish to see Banks & Payment Companies to actively take part in the creation of National Payments Grid, thus earning dearly on Volume, with increasing Digital savvy Consumers, who buy many things digitally right from idly in nearby shops to automobiles online/in-person, for every payment need.

While Banks/Payment Companies are ready to Compete and Reduce Prices to their Customers, they are Not Ready to offer Zero MDR to Merchants. Can Government do something more, to make their proposal holistic and interesting to Banks/Payment Companies?

P.S. This article was originally posted on Linkedin Pulse on December 31, 2019.