Low transaction charges don’t promote digital payments: Mastercard CEO Ajay Banga

MUMBAI: The opportunity to grow digital payments in India is enormous, with just about 10% of the total merchant community in the network, but tinkering with fees associated with electronic transactions could slow the adoption rather than promoting it, said Mastercard CEO Ajay Banga.There is no empirical evidence that either a low merchant discount rate (MDR) or the absence of it promotes digital transactions. On the contrary, any such move takes away the incentive for intermediaries, who are vital for acquiring customers, Banga said in a telephonic interview. He was speaking to ET two days after the announcement that he would be elevated to the position of executive chairman.MDR is the fee charged by banks and payments companies from merchants or shop owners for providing them payment settlement infrastructure, or point-of-sale (PoS) machines.“Wherever in the world MDR has been reduced to the levels where it makes it uneconomical for the acquirer or issuer to participate in the natural business of electronic payments, you tend to lose the momentum. It’s a balancing act,” he said.The government has been tinkering with the fee paid for electronic transactions using debit cards. Recently, it scrapped MDR charges on payments made using the RuPay card, which is issued by the National Payments Corp of India.Low MDR charges take away the incentive that is essential for companies that get customers on board. These companies then do not find it meaningful to remain in business, Banga pointed out.“We need to find a way to ensure economic sustenance for this model,” he said. “My view is that commercial sustainability in these decisions is very important. There are a lot of studies to show that this is the right way to think about it.”Banga said there is an immense opportunity to promote digital payments in India with just about 5 million of the total 65 million merchants currently in the network, he said.“Don’t know the right number (cash to digital) for India, but I do expect digital payments in India to grow substantially than (in) the past 10 years,” Banga said. “About 5-6 million merchants accept card payments in India, which is way more than what it used to be four years ago when just 1 million merchants accepted cards. But the scope is huge. There are nearly 65 million merchants in India.”Banga also praised the banking regulator for proactively pushing digital payments and being receptive to suggestions.“I think the RBI (Reserve Bank of India) has been very fair and transparent. I don’t have a lot of advice for them, it is one of the best regulators in the world,” he said.“We have been telling them (the RBI) our views on data predictability. We are also talking to them to enable payment directory from your bank account using our facility called ‘pay-by-account’. They are open to discussing how to enable that. The RBI is very constructive,” Banga said.

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