Impact of Ministry of Finance's Clarification on Merchant Discount Rate (MDR)
The Ministry of Finance recently clarified that there are no plans to reintroduce the merchant discount rate (MDR) on payments done via the Unified Payments Interface (UPI). This announcement has affected the monetization strategies of payment firms that revolve around the UPI ecosystem.
Industry Sentiments
- The industry had hoped that MDR would be reinstated, at least for high-value transactions, but this expectation has now diminished.
- Reintroducing MDR is challenging as merchants have become accustomed to free digital payments.
- Vijay Shekhar Sharma, CEO of Paytm, noted that reinstating MDR could present monetization opportunities for payment platforms.
Alternative Revenue Sources
- Fintech firms are encouraging the use of MDR-generating instruments such as:
- Mobile wallets and prepaid payment instruments (PPIs)
- Credit cards
- Bipin Preet Singh, co-founder of Mobikwik, highlighted discussions on implementing MDR for PPI-UPI, which could offer new revenue streams.
Implications for Upcoming IPOs
- Several fintech companies have significant stakes in UPI payments:
- PhonePe, preparing for an IPO, derives 95% of its revenue from digital payments, with UPI being a core aspect.
- Pine Labs and Razorpay, both planning IPOs, also heavily rely on UPI transactions.
Innovation and Investment Concerns
- The absence of MDR has led to a halt in innovation and investment within the core payments business sector, according to industry founders.