Merchant Fees for Mobile Payments To Be Ditched in India

What you subsidize, you get more of. That’s an old political saw from a long way back, and its corollary also applies: what you penalize, you get less of. This makes news about a move to waive merchant discount rate (MDR) charges in India particularly useful for pointing these truisms out, as some—like Paytm founder Vijay Shekhar Sharma—project that this will encourage mobile payments use in India.

Under the terms of the move, the MDR charges for transactions above 2,000 rupees—about $31.26 US as of this writing—will be waived, and the government will reimburse said amount for two years, starting January 1, 2018.

This isn’t the first time the MDR has come under fire; the Reserve Bank of India had previously been seen supporting a measure that would charge MDR based on overall turnover, but retailers protested in droves, suggesting such a move would mean higher costs and keeping them out of mobile payments.

This move is expected by some, like Sharma, to fuel interest in mobile payments platforms among smaller merchants. Said merchants were interested already, but had a tough time justifying the expense connected with such platforms. With the expense essentially removed, Sharma noted, that should be enough to start pulling in the small merchant looking to get in on mobile payments. Consumers were already interested enough, Sharma noted, but retailers’ lack of acceptance was holding the market back.

However, Sharma offered up something of a contradictory viewpoint on that front; he noted that quick response (QR) code use was on the rise, and he figured that between 70 and 75 percent of merchants already accepted Paytm at their locations.

If 70 to 75 percent of merchants are already accepting a mobile payments platform like Paytm, then what’s left? It might seem downright desperate, revamping an entire merchant fee structure just to get stragglers on board. Given that India previously shut down large portions of its entire currency, however, the move to digital may be more of a priority than some might expect. In which case, getting that last 25 to 30 percent on board will be vital going forward.

India’s master plan in all this is unclear, but so far, it means great things for mobile payments in the days ahead.