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MDR ban causes reduced issuance of RuPay debit card by banks

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The booming transaction all around the world has increased rapidly especially following the pandemic scenario and has now become one of the easiest and most convenient ways of handling money and transacting, without undergoing the unnecessary hassle of standing in long queues or trafficking the bank.

When it comes to the Indian banking system, the Reserve Bank of India has notices’ 1 Bn transactions through both online and offline merchant payment modes in the financial year 2019, a nearly 70% jump compared to 667Mn transactions in the financial year 2018′ as per RuPay report.

“Driven by a continued rise in private expenditure, with retail consumption at the forefront, and a significant increase in digital maturity of the Indian customers.”

However, the problem lies in the fact when recently a study conducted by IIT-Bombay has revealed that banks are now preferring Visa and Mastercards over RuPay cards as it tends to cancel out the merchant payments, which in turn is not fetching money to those banks.

Naturally, initiated under the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme, the surging RuPay issuance back by 428 lakh in 2018 has suddenly dropped down to 363 lakhs. Professor of statistics at IIT-Bombay, Mr. Ashish Das has put his valuable comments on it saying:

It alarms to see an expanding gap between PMJDY accounts added and RuPay debit cards issued. Unless there are other extraneous causes, a possible cause for such a trend could be that banks have deliberately moved away from RuPay and promoted a card scheme, which generates more revenue for them, – Mr. Ashish

With the subdued issuance, the MDR pricing for RuPay debit cards had been zero while on the other hand, other Mastercards were charging 0.4-0.9% of the transaction value whose lion’s share was transferred to the banks, speaking of which, Das said:

This reflects an implicit increase in y-o-y growth of MasterCard/Visa debit cards. We call this the whiplash of the zero MDR policy, – Das

It has been noticed that the earlier transaction worth Rs 16,728 crore in January 2020, has undergone a rapid fall following the MDR ban by our Finance Minister, by an average of Rs 13,000 crore monthly transaction.

Recently, the Government of India had released this MDR ban on RuPay debit cards as well as UPI transaction to encourage more online transactions. But it seems that the scheme has harbored an altogether different statistics to the Indian banking economy.

While on one hand, it has been a big beneficial boon to the merchants following the lesser cash flow due to the pandemic, the Banking sectors of India have taken an alternate strategy, which has harbored quite a negative impact from a look at the other side of the con.


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