Merchant discount rate on UPI-RuPay credit cards likely to be 2%

NPCI set to seek RBI nod for scheme; free swipes at smaller outlets

National Payments Corporation of India (NPCI) and banks have hammered out the contours of the pricing of credit-card transactions on the RuPay-Unified Payments Interface (UPI).

In talks held last week, the consensus veered to a merchant discount rate (MDR) — the charge paid by merchants to the card-issuing bank for card transactions — of 2 per cent. Of this, 1.5 per cent will go towards the issuing bank, with the rest (50 basis points) being shared with RuPay and the acquiring entity.

This can be a bank or players like Mswipe or Paytm. At outlets with an annual turnover of up to Rs 20 lakh, these transactions will be free with the ticket size at Rs 2,000-5,000 with no limits on the number of daily transactions.

In effect, this last aspect mirrors the zero-MDR on RuPay-UPI-debit cards, which was announced in the July 2019 Union Budget.

The scheme is to be forwarded to the Reserve Bank of India (RBI) and RuPay-UPI credit-card transactions will start by mid-September. The fixing of the MDR on such transactions had been a sticking-point after the RBI announced linking Rupay credit cards to the UPI last month.

This is because unlike debit-card transactions linked to the UPI, on which there is no MDR for ticket sizes of up to Rs 2,000, it is central to the credit-card business. This is because of its unsecured nature with a 45-day interest-free period; and liquidity has to be maintained as well. Incidentally, zero-MDR RuPay debit cards meant that fiduciary support had to be provided for the industry; and the Union Cabinet had last December approved a Rs 1,300-crore package — as reimbursement to banks as compensation for zero MDR and to give a fillip to digital payments. 

On the cards

• Of the 2% MDR, 1.5% will go towards the issuing bank and the rest will be shared by the acquiring entity and RuPay
• At outlets with an annual turnover of up to Rs 20 lakh, transactions will be free, with ticket size capped at Rs 2,000-5,000 and no limits on the number of daily transactions
• Loss of MDR at smaller outlets to be made up for by annual charges on credit cards, and earnings on rollovers after the 45-day interest-free window

Senior officials involved in discussions on the MDR said nearly 55 per cent of all credit-card transactions happened online and these platforms could afford to shell out the MDR. The bulk of the rest happen in-store, of which only about 5 per cent happen at outlets with an annual turnover of up to Rs 20 lakh. It was pointed out that forgoing the MDR by participants -- issuers and acquirers -- will be more than made up for by the annual charges on credit cards that issuers earn, and earnings on rollovers after the 45-day interest-free window.

A top industry source was, however, categorical that “at this point in time, there is no issue of either Visa or MasterCard being allowed into a similar arrangement, nor are there plans for a pilot-scheme involving them”.

In one fell swoop, the issuance of Rupay credit cards will zoom and set the stage for transactions of much lower values even as it enables banks to set lower spending limits for customers.

“You will see the emergence of customised limits,” said a senior banker involved in the discussions with NPCI.

While the granular breakdown of the 70 million credit cards in circulation is not available in the public domain, sources in the payment networks say the share is in favour of Visa at nearly 70 per cent, with MasterCard making up for the bulk of the rest.

Rupay credit cards in circulation are estimated at around one million.