00:00Okay, joining me now is my first special guest today, Samir Nigam, PhonePay CEO joins us.
00:06Good to have you on the show, Samir.
00:08You've come out strongly in support of the government's decision to have this merchant
00:14discount rate of 0.4% above transactions, above rupees 2000.
00:21And you believe that this will create, I read somewhere, an enabling system for merchant
00:26discount rates.
00:27But how do you respond to those who say that the merchants, those who we buy products
00:32from above rupees 2000 will eventually start passing the burden on to consumers, that this
00:38is some kind of a consumer tax in a way?
00:43I've been pretty consistent, Rajdeep, over the last six years.
00:47When UPI started, there was an MDR of 0.65%.
00:50People have forgotten how fast the market grew in the first four years as well.
00:54It was growing exponentially, and it is only in 2020 during COVID that the government
00:59introduced or made MDR free.
01:02So as far as we were concerned in the industry, even without or with MDR, UPI was growing extremely
01:10fast.
01:10As were, by the way, digital wallets, if you remember, 10 years ago, which also had an MDR
01:14of over 1% at the time.
01:16So I think it was a myth to begin with, that MDR had to be free for payments to take
01:22off.
01:23The second thing is that, one, in law, it is illegal right now for merchants to transfer
01:28the cost to customers.
01:30But even in practice, a lot has changed since 10 years ago.
01:34We now have almost 60 lakh or 6 million merchants with POS devices in the country, accepting
01:41credit cards, rupee cards, wallets, each with an interchange of 1.5%, 2.5%.
01:47Debit cards of all sorts in India have an interchange of 0.65%, even today.
01:52So UPI remains at 0.4%, the lowest MDR in the world, not in India, of all networks out
02:00there.
02:01That's an important thing to learn.
02:03Second, 95% to 96% of the transactions, what are called P2M merchant transactions, are below
02:122,000 rupees.
02:13So for an average person like you or me, on average, 95%, 96% of the time, your daily groceries,
02:21your rickshaws, your public transport, all of that, you're not going to be having a merchant
02:26getting charged when you make a payment.
02:28On the 4%, we don't believe that the merchants will charge the customer.
02:33Because they've not done it in the cards of wallet economy or UPI even before this.
02:38Samit, Samit, there are two parts to what you've said.
02:41You know, you seem to be suggesting that consumers will not be charged that and based on a past
02:46experience that it will not be passed on to consumers.
02:49But nothing technically stops merchants from passing it on to them.
02:54It could be economically feasible for them.
02:56Also, they could do it either through high prices, implicit surcharges.
03:02Do you agree with that?
03:03Let's get that very clear.
03:04That the possibility exists that merchants will pass on any levy on them, on to consumers.
03:12Actually, any surcharge linked to paying UPI MDR is illegal through the Gazette notification itself.
03:19And the NPCI circular explicitly again confirms that.
03:22So, that is actually that burden is on the acquiring banks and payment aggregators like us
03:27to ensure that our merchants don't actually transfer any cost to the customer for accepting UPI payments.
03:34Now, whether they're transferred indirectly or not, I'm again saying, I believe that the chances of that are low for
03:41the following two reasons.
03:43Most of the categories where the margins are very, very thin, like utilities, have already been exempted.
03:49Bill payments is capped at 5 rupees.
03:52Insurance is capped at 5 rupees.
03:54Stock broking is at 0.02%.
03:57Petrol is capped at 5 rupees.
03:59So, there are multiple carve-outs even to this 0.4% MDR, where the government has wisely, I would
04:07say,
04:07said that we will floor the MDR total to a flat number.
04:12So, it remains affordable and is not transferred.
04:15The categories where there will be, in fact, MDR, that is closer to the 0.4% intended,
04:21are things like retail, clothing, dining, travel, entertainment, which have a much richer margin structure, to be honest.
04:32And they are already actually getting a large number of credit card-paying customers and wallet customers forever.
04:38So, they were paying.
04:39They were not the ones who asked for 0 MDR.
04:41You know, but the point, Samir, is, you know, you're saying majority of transactions by volume are less than 2
04:49,000.
04:49Therefore, people will not be affected in any way.
04:52But the fact also is, Samir Nigam, that transactions above rupees 2,000 may constitute only 4% of transactions
05:00by volume.
05:01But the figures show they actually constitute about 66% of the total UPI value.
05:06So, transactions of high value, those made at hospitals, hotels, restaurants, retailers, as you mentioned, schools,
05:13all of this could be potentially under the scanner and therefore that economic impact cannot be underestimated.
05:20Do you agree?
05:23True.
05:23But again, I would request you, please study the nexures that NPCI has provided in this circular.
05:31A lot of the categories you mentioned actually have a cap of 5%.
05:36Rather, 5 rupees is not 0.4% for exactly that reason.
05:40Education comes to mind.
05:42Bill payments comes to mind.
05:44Patrol, which is where a lot of spending happens on the consumer side, is capped at 5 rupees.
05:49So, it is not actually a significant amount.
05:51The average petrol pump ticket size is about 6,600 rupees.
05:57So, the effective MDR at 5 rupees is negligible.
06:01So, they have looked at the math.
06:03And again, I say this as an invested party.
06:06I would love if it were just very high across the board.
06:09But I am telling you pragmatically, this is a right balance.
06:12A very large part of that 66% that people are talking about is in categories like insurance,
06:19like the capital markets, like petrol, like bill payments.
06:24And those are exempted out.
06:25They are basically at flat 5 rupees.
06:27You know, may I just ask you though, how do you respond to critics like former Bharat Pei co-founder
06:35Ashneel Grover, who created a bit of a stir by saying levying charges on UPI transactions amounts
06:42to some kind of tax collection.
06:43And this 2,000 rupees threshold is economically arbitrary.
06:48How do you respond to the Ashneel Grovers?
06:52I won't comment simply because I don't take him seriously.
06:59No, no.
07:00You don't take him seriously can't be an answer.
07:02The answer I want to know, how will you respond to not just Ashneel Grover.
07:06There are others who are saying, levying charges on UPI transactions in this manner will effectively
07:12amount to tax collection.
07:15Ironically, the same people saying this are ignoring the fact that if the merchants not
07:21bearing this MDR, it was the government that's actually been paying the industry subsidies
07:27through tax dollars directly for the last five years.
07:30That's exactly what we as an industry hate.
07:33We don't want subsidies from the government.
07:35We stand on our own feet.
07:37We raise equity, we raise debt as a business and we are running for-profit businesses.
07:42And we don't want to be beholden to government subsidies because the fact is if the industry
07:48is spending 10-12,000 crores a year, Rajdeep, at today's volumes, paying 2,000 crores in
07:53subsidy doesn't cut it.
07:55We are all bleeding money.
07:56All our balance sheets are in public domain.
07:58And if we don't actually, if the government does pay us that much money, surely we'd be
08:04the only market in the world where the government is paying 10,000 crores, 15,000 crores to the
08:08industry, but in much, much smaller economies, MDR works.
08:13200 markets in the world.
08:14India is the only one which had this weird thing called zero MDR.
08:18It's never existed anywhere.
08:19From Brazil to Russia to you name it, any market.
08:23No, but how will you respond again, Samir, to the political argument now?
08:28The political argument which is being made by the Congress Party, for example, that a lot
08:33of this is being done under U.S. pressure, that political parties are saying that the
08:39MasterCards and the visas were lobbying with the government to ensure that the MDR is in
08:45place because they felt otherwise they were losing out in this ecosystem and they were
08:49using their clout with the U.S. administration to put pressure on the Modi government.
08:56I have friends at both Visa and MasterCard as well.
08:58And I think they're exceptionally good global networks.
09:01So let me say this.
09:03I have shared with them since 2016-17 that Visa and MasterCard need to understand India
09:09as a mobile first market, not a cards first market.
09:12I'm happy to say after 10 years, we just at the Global Fintech Fest, we finally launched
09:17Tap and Pay using safeguards within the app.
09:20Something that's been live with Apple Pay and Samsung Pay and Google Pay out west for
09:2310 years.
09:24It finally launched here.
09:26Visa and MasterCard will grow their market share of their transactions if they solve for
09:31India doing what India needs.
09:34But if anyone believes in the political spectrum or otherwise, that Visa and MasterCard somehow
09:41benefit because UPI becomes chargeable.
09:43I don't see that in the business.
09:44By the way, I can say this with some confidence because we have 70-80 million cards on file
09:49as well from Visa and MasterCard.
09:51We are one of the largest payment processors for Visa and MasterCard as well.
09:54And I'm telling you that the difference was not 0.4% of MDR.
09:58It was the product.
10:00UPI acceptance, it required a 10 rupee QR code at a shop or a self-QR by a delivery boy
10:06or
10:06a rickshaw.
10:07There's no such acceptance network for Visa and MasterCard.
10:10You need several thousand rupee post device, right?
10:13How many people in India were putting that?
10:15So they have to innovate on that side.
10:16And that started happening.
10:18Let me ask you, in conclusion, the domestic competition question that is being raised by
10:24some, Sameer.
10:24The MDR revenue is going to be distributed among banks, acquirers, UPI apps.
10:31Given that phone pay and Google pay almost dominate UPI, will this monetizing of the ecosystem
10:38strengthen the position of large players like you rather than promote genuine competition?
10:43Small fintech will end up losing out and thereby the entire ecosystem created over digitization
10:49will lose out.
10:53Because again, you mentioned, let me count the actors.
10:56The issuing bank, which is the customer's bank, gets 40% of the MDR, right off the bat.
11:02Then there's the PSP bank at 10%, the TPAP at 20%, which is apps like us and Google Pay.
11:08That's the space we operate in.
11:09We are fighting for the 20% of the MDR pay.
11:12Then there's the acquiring bank and the payment aggregators.
11:16Of that 20%, we are at about 45%, right?
11:20So that's the size of the pie.
11:22People make it sound like if I'm 45% of payments in India, I'm getting 45% of MDR.
11:27I wish life were that easy.
11:28It's not linear math.
11:30Fact of the matter is, UPI is one of the most complex, it's a four-party model as it's called.
11:36There's acquirers, there's apps, there's sponsor banks, there's issuers.
11:38There's a lot of people that feed, and I'm not even including NPCI yet.
11:43And then, I don't know if you noticed, out of that money that we make, NPCI has announced 5%
11:48will be withheld to make sure that small merchants grow.
11:52So there's a 5% carve out.
11:54What used to be government digital incentive is now NPCI digital incentive.
11:58So, I think it is a very welcome move directionally to get MDR back in.
12:03But, as they say, India may shiadi hoti hai toh bhot bhaar hati aate hai.
12:08This one has a lot of participants.
12:11I want to leave it there.
12:12I want to leave it there, Sameer.
12:14Good to have you on the show giving us your perspective about why you believe that this is a welcome
12:20move.
12:20Thank you very much.
12:21Thank you very much.
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