The Indian fintech industry has hit a roadblock in monetizing the UPI system with the government’s recent clarification over the Merchant Discount Rate. The government, through the finance ministry, claims that they have no plans to reintroduce the MDR system on payments made through the United Payments Interface (UPI). The government has called the murmurs of MDR's comeback “completely false, baseless, and misleading.” 

As a consequence, the shares of major Indian fintech companies saw a huge slump the day after the clarification. To mention, One97 Communications, which owns Paytm, saw a slump of 6.8 percent, while One Mobiwik Systems, which owns Mobikwik, saw a 2.6 percent slump. The industry thinks that bringing back a regime that restricts free digital payments when the industry has become used to it is going to be extremely challenging. 

To read about UPI's latest transaction figures recorded in May, click here! 

MDR: A Hope Not Met

“It will be business as usual since we have been operating without MDR for a few years now. But there was hope in the industry that MDR would be brought back at least for big-ticket transactions; now that is gone,” the chief executive of a major payment processor said on the condition of anonymity.

Over the last 2-3 months, India’s fintech industry could hear the corridors loud and clear, suggesting a serious and strategic 2nd roll-out of the MDR policy, limited only to large purchases.

MDR: A Potential Revenue Tool 

Following the fintech industry, it was evident that the industry was expecting some gains out of the 2nd roll-out, as it was also heard in the analysts’ call of Paytm & Mobikwik. For the first time, there was an initiative that could have potentially transformed the revenue from the digital payments infrastructure for fintechs like Paytm, Mobikwik, Razorpay, PhonePe, etc.

With the potential impact on revenue from the digital payments structure, the associated companies were expected to make good gains from the rollout. 

To read about the latest funding round closed by Cred, led by GIC, click here! 

Industry Prioritizing MDR Instruments

Industry insiders also pointed out that fintech firms have been encouraging customers to move to instruments like mobile wallets or prepaid payment instruments (PPIs) and credit cards, which are MDR-generating instruments.