Abstract:
Government of India on February 29, 2016 came out with cabinet approved guidelines for Promotion of Payments through Cards and Digital means. These guidelines provide some directions setting catalysts to migrate the country to a digital payment embracing society. Apart from rationalizing merchant discount rate (MDR), the guidelines emphasise withdrawal of any merchant charges (called surcharge) imposed on consumers while paying through cards and digital means.
During the past three years, India has seen a transformational shift of the government’s push to promote digital payments. The demonetisation of specified bank notes gave a catalytic effect and led to several innovative payment products. Both RBI and the government contributed significantly by bringing in regulatory changes and incentives for end users.
However, despite all efforts by RBI and the government, there are several friction points that still inhibit the promotion of payments through cards and digital means. Focusing on MDR and related surcharge on digital payments, we look into possible sanitisation of distortions in the digital payments space.
After a quick look into the recent growth in the retail digital payments, we discuss some of the regulations enforced and their impact on the retail payment space, particularly those on surcharges in digital payments. We show multiple instances of organised surcharging on debit/credit card and BHIM-UPI transactions in violation to extant rules and regulations. We bring to light the extant lack of accountability of acquirer banks and card payment networks. Also, the ecosystem’s creation of a dichotomy while allowing banks to surcharge on credit cards for only a certain category of merchants in a discriminatory fashion is also discussed. Finally, we give some concluding remarks and show the way forward.
