Centre's no MDR stance derails fintech's UPI monetisation plans
The Ministry of Finance's clarification that there was no plan to reintroduce the merchant discount rate (MDR) on payments done via Unified Payments Interface has dampened the monetisation plans that payment firms had around the popular payment ecosystem.Shares of listed payment firms fell Thursday, a day after the ministry said speculations about the return of the fee for processing UPI payments were 'completely false, baseless and misleading'. One 97 Communications , which runs the payment platform Paytm , closed 6.8% lower at Rs 895.15 on the BSE. One Mobikwik Systems, which operates the Mobikwik application, ended 2.6% down at Rs 274.15.'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.A senior banker who leads the payments function at a private sector lender pointed out that once the government has got the merchant ecosystem used to free digital payments, bringing back the system was always going to be a challenge.Over the last two months, the industry circle was abuzz with conversations around the government seriously considering bringing back MDR, but only for large purchases.'Obviously, we do not know much, and we will not like to predict how the government is looking at it, but we definitely see talks of MDR coming on UPI,' Paytm chief executive Vijay Shekhar Sharma said during the company's FY25 analyst call. He said it could help in building monetisation opportunities from the core payments business for firms like Paytm.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.'MDR on PPI-UPI, something that is already in motion from the RBI and it is under discussion in the payments ecosystem across multiple industry players and should go live soon. From our perspective, it will definitely bring a new source of revenue, which today we are not getting,' Mobikwik cofounder Bipin Preet Singh said during the FY25 analyst call.While listed firms were talking about projected revenue opportunities, the ministry clarification on MDR could have an impact on fintech IPOs lined up for the coming months.ET reported on May 19 that PhonePe gets 95% of its revenue from digital payments and UPI payments is a core aspect of that business. The company is in the process of filing for an IPO in the second half of the current year. Merchant payments company Pine Labs, which is set to file its draft IPO papers this month, gets a significant share of payments via UPI. For Razorpay, another company planning to go public by 2026, UPI accounts for a significant chunk of business.'We have seen almost all forms of innovation and new investments stop in the core payments business. There was hope in the industry that some of it would come back, but it seems that is also gone,' said the founder of another payments firm.
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