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New Delhi. Crores of financial transactions are taking place every day through Unified Payments Interface (UPI) in India, but its financial model and Zero-MDR policy have sparked a heated debate among the country’s top entrepreneurs and policy-makers. In this series, Anupam Mittal, founder and chief angel investor of Shaadi.com and People Group, has given a big statement saying that calling Merchant Discount Rate (MDR) on UPI as tax is completely wrong and misleading. According to Mittal, it is necessary to remove the basic costs to keep the world-class digital public infrastructure secure, modern and self-sustaining in the long run. Along with this, he has introduced a unique formula of setting up at least ‘5 NPCI’ like institutions in the country to eliminate single-point risk in the payments market.
Currently a zero MDR policy is in place on general person-to-person (P2P) and person-to-merchant (P2M) UPI payments under the regulations of the Government of India and the Reserve Bank of India (RBI). This means that no processing fee is charged for accepting money through UPI from small shopkeepers or big merchants. Fintech companies and banks have been arguing that billions of rupees are spent on server maintenance, cyber security, fraud prevention and innovation, but due to lack of revenue model, this ecosystem is continuously running in losses. Whenever there is a discussion about imposing a nominal fee on this, opposition starts by calling it ‘digital tax’. Anupam Mittal has completely rejected this narrative.
Expressing his opinion on social media and public forums, Anupam Mittal clarified that tax is a mandatory fee collected by the government for public welfare, whereas MDR is a service charge taken in exchange for a high-level technical service. When a merchant installs a card swipe machine (POS), he happily pays a fee of 1% to 2% on credit cards or debit cards because he gets rid of the hassle of handling cash, theft or depositing it in the bank.
Mittal says that when the merchant is getting payment directly into the bank account within seconds in real-time, then the banks, payment aggregators and fintech apps running that technical pipeline have a legitimate business right to get the minimum charges. It is economically unfair to scare the general public and businessmen by calling it a government tax. Without a sustainable revenue model, no network, whether private or public, can withstand modern technological capabilities and cyber attacks in the long run.
At present, the operation of the entire retail payment ecosystem of India is on the shoulders of National Payments Corporation of India (NPCI). All important systems like UPI, IMPS, RuPay, Aadhaar Enabled Payment System (AePS) and Fastag are managed by NPCI alone. Anupam Mittal has given a revolutionary suggestion by pointing out the systemic risk hidden in this system.
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Monopoly and Security Risks: According to Mittal, when all the digital transactions of 140 crore people pass through a single central system, the entire national economy can come to a halt for a few hours in the event of server downtime, technical glitch or a major cyber attack.
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Innovation from Competition: He suggested that there should be at least 4 to 5 independent but inter-operable entities (New Umbrella Entities – NUEs) like NPCI in the country. When multiple entities compete in the market, transaction costs will decrease, technological innovation will accelerate, and backup infrastructure will automatically be created.
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Relief to fintech companies: The multi-institutional framework will give startups and fintech companies the freedom to develop new features and not be dependent on the policies of just one regulatory agency.
This statement of Anupam Mittal has come at a time when the idea of New Umbrella Entity (NUE) proposed by the Reserve Bank a few years ago was shelved. At that time, big giants like Tata Group, Reliance, Paytm and SBI had applied by forming a consortium to create a digital payment network parallel to NPCI, but later no final decision was taken at the regulatory level.
Mittal believes that now the time has come when the government and RBI should review this policy again. India’s digital economy is now going to touch the trillion dollar level. In such a situation, to avoid Single Point of Failure (SPOF), the multi-operator model has become an essential step for both the economic sovereignty and security of the country.
The biggest question that arises in this entire controversy is that if MDR or any minimum charge is implemented on UPI, will it be a burden on the pockets of common citizens? As argued by industry experts and Anupam Mittal himself, its structure should be extremely balanced:
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P2P transfer always free: There should never be any charge on a normal bank transfer made by a common citizen to a family member or friend.
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Complete exemption for small street vendors: Small QR code transactions up to Rs 2,000 or Rs 5,000 should be kept within the ambit of zero-MDR so that the grassroots reach of Digital India is not affected.
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Nominal charges on large merchants and corporates: Large volume merchants like big supermarkets, e-commerce companies, airlines and petrol pumps can be charged a nominal tier-based fee of 0.1% to 0.3%, which would be much cheaper than credit cards and would make the network financially sound.
Anupam Mittal’s statement on ‘5 NPCI’ and ‘MDR vs Tax’ has given rise to a new and healthy economic debate in the Indian fintech world, which can give a new direction to the long-term policies of digital payments in the coming days.