Banks keep share of subsidies, payment firms say

Payments companies and banks are at odds over sharing government subsidies for building payment infrastructure, three people with knowledge of the matter said.

The companies wrote to National Payments Corp. of India (NPCI), complaining that ₹700 crore out of the ₹1,500 crore granted in the budget is withheld by banks, they said. According to them, this has deprived companies connecting the last mile of the revenue promised by the state. The government provided the subsidies in exchange for waiving the Merchant Discount Rate (MDR) fee.

“Government has released ₹700 crore in subsidies to banks but they are not sharing it with any payment aggregator,” the CEO of a payment company said on condition of anonymity.

Compensation for MDR Waiver

“We raised the issue with NPCI, which is the nodal agency, but the feedback we got was that we should raise the issue with the respective banks, but they are not responding.

Last year, Finance Minister Nirmala Sitharaman announced a Rs 1,500 crore fund to accelerate the expansion of India’s digital payments industry, a move that was seen as offsetting the waiver of MDR on use Unified Payment Interface (UPI) and RuPay cards. in its previous budget.

Payment aggregators are eligible to receive a 15 basis point subsidy on low value digital transactions. One basis point is 0.01 percentage point.

“We have asked all the banks for whom we process transactions on RuPay debit cards – they do not share any subsidy amount with us,” said another CEO. “Payment aggregators have been working so hard to acquire transactions on the RuPay platform while most banks were either abandoning these cards or slowing their expansion.”

The banks did not respond to questions about this.

Currently, the cost of digital payment services such as transfer fees or interchange fees are borne by one or more payment system participants or passed on to merchants through the MDR or ultimately levied on the customer as additional charges.

The Reserve Bank of India (RBI) has said that it will conduct a comprehensive review of all aspects related to fees involved in various digital payments channels in the recently released Payments Vision 2025 document.

“We believe this review could result in relatively higher MDRs for credit cards and wallets and the introduction of MDR on UPI to at least cover the cost,” said Anand Dama, Principal Research Analyst,


As the adoption of electronic payments has surged, concerns about sustainability abound. Total digital payments grew by 216% and 10% in terms of volume and value, respectively, in March compared to the previous year, according to data from RBI.

In contrast, the use of paper instruments such as checks declined significantly over the period, with their share of total retail payments declining from 3.83% to 0.88% in terms of volume and from 19.62% to 11.47% in terms of value.

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