While the industry has welcomed RBI's lowering of MDR (Merchant Discount Rate) rates on debit card transactions upto Rs 2000 for two years, sources say more measures need to be taken for ease of business and frictionless transactions.
Banks feel that there should be more clarity on the how the government intends to subsidise MDR costs and the split in transaction fee, according to a media report.
"The transaction costs, which are split between exchanges like Visa, MasterCard, RuPay, acquiring bank and the issuing bank, is still largely contract-driven with rates differing based on the size, clout and network of the banks. If there is rationalisation here, then it will be better for consumers," said Indian Overseas Bank CEO R Subramaniakumar in an earlier interview with TOI.
Smaller banks also say that they will feel the pinch more acutely than State Bank of India, ICICI Bank, HDFC Bank and Axis Bank — which have larger number of debit cards in usage and a wider PoS distribution network.
"As a smaller bank our funding costs are relatively higher. A problem that larger banks will not face; they can absorb lower MDR rates without too much difficulty. Also, the market is tipped towards the issuer bank — which gets the lion's share of the transaction fee," said Parthasarathy Mukherjee, MD, Lakshmi Vilas Bank.
Payment service providers also feel that there needs to be more clarity on the split between different parties on transaction fee.
"We have still not received clarity on how the government intends to subsidise banks. What is the distribution split - how much for the interchange? How much for the acquirer and receiver bank? Currently, the ratio is skewed towards the issuer. The issuer gets about 70%, while the acquirer gets 20% and the interchange 10%," said V Balasubramanium, president —ATMs and payment systems, FSS.
"It will be better if the split is more equitable — with 45% going to the acquirer and 45% to the issuer. Otherwise, larger banks such as SBI, HDFC Bank, ICICI Bank and Axis Bank stand to benefit more from such a move than smaller players," said Balasubramanium. Until demonetisation, MDR for debit cards were fixed at 0.75% for transactions up to Rs 2,000, while for transactions above Rs 2,000, MDR was 1%.
Post-demonetisation MDR was reduced for transactions up to Rs 1,000, to 0.25 % of the transaction value — which squeezed margins for many players. For transactions of value Rs 1,000 - Rs 1,999, MDR was kept at 0.50 % of the transaction value & for above Rs 2000 MDR was at 1%. In December, the government said it would subside lower value transactions below Rs 2,000 to push digital growth.
Analysts point out — the regulations are still silent on the unbundling of MDR charges which is crucial for lowering the charges further.
"Also card adoption and activity levels should increase, to partially offset the loss for banks from the current MDR rationalisation on per transaction basis. Increased POS adoption would also result in growth in current accounts for the banks, which could improve the liability spreads and open further cross-sell avenues for banks," said Nilanjan Karfa, analyst, Jefferies.