After missing the deadline of March 31, 2022, to implement the Reserve Bank of India’s (RBI) interoperability mandate for all full-KYC wallets and prepaid payment instruments (PPIs), fintech industry players expect an extension of at least three months as they await clarity on interchange rates.
Interchange rates for PPIs are similar to merchant discount rates or transaction fees that merchants pay when a customer uses a credit or a debit card. Now, for most prepaid card businesses, this is the only significant revenue stream unlike banks that have other ways to earn like loans, fixed deposits, float and cross selling, and are in a position to forgo MDR on debit cards.
When interoperability across PPIs come into play, this brings issuing companies under the ambit of NPCI or UPI, which currently charges zero MDR. Most fintech players that BusinessLine reached out to said they are awaiting regulatory clarity on interchange rates.
“For a debit card, the interchange MDR is zero by CBDT circular enforcement. But for prepaid there’s an understanding that if interchange MDR for them is made zero, then there’s no other revenue stream for a prepaid card issuing company unlike a bank…Hence, people know and appreciate that MDR cannot be made zero for such products, the question is whether MDR rate will continue to be 1.85 per cent as it is today on a merchant transaction for a prepaid card, or will it be reduced to 0.5-1 per cent,” Anand Kumar Bajaj, Founder, MD & CEO, PayNearby told BusinessLine.
He added: “Though there’s a lobby which will want to make it free. The larger players would want to make it zero MDR, which will make only them be in a position to bring something new in the ecosystem.”
Bajaj said that he is expecting a three-month extension from the RBI for fintech companies to adhere to the mandatory interoperability rules.
“There’s an extension warranted, and it’s a good intent of the regulator that they want to empower this. I am sure there is a 3-month extension warranted by RBI. But even if there’s a short-term extension, this will bring a lot of pressure on NPCI. A lot of people will be queuing up there for certification. There’s an SDK (software development kit) library of UPI, which is embedded in debit cards journey, and the same can be used for prepaid cards. So there won’t be any further delays once the interchange rate is decided on,” he said.
The interoperability mandate announced in 2021 also upped the permitted limit of outstanding balance to ₹2 lakh from ₹1 lakh while allowing cash withdrawals from full-KYC non-bank wallets. This is intended to make wallets similar to bank accounts in terms of services.
Published on
April 01, 2022
