Payment companies starved of govt subsidy on digital payments

In December 2017, the government issued a gazette notification agreeing to waive off fee from digital transactions up to Rs 2,000

A government subvention scheme introduced to ease the burden of accepting digital payments on merchants has ended up putting pressure on payment firms due to delay in reimbursements. 

While payment companies are threatening banks that they will pull the plug on their services, banks are claiming that they haven’t received a penny from the government yet, emails accessed by Business Standard show. 

In December 2017, the government issued a gazette notification agreeing to waive off all transaction fee from digital transactions up to Rs 2,000 and promised to reimburse banks for the same. The banks, in turn, are supposed to pay card networks such as Mastercard and Visa as well as other operators such as payment aggregators like Billdesk, CCAvenue and PayU for their services from this subsidy that they receive from the government. 

However, that hasn’t happened. Business Standard has learnt that even though the subvention scheme started from January 1, not a single penny has been released to payment aggregators who perform crucial tasks for banks such as acquiring the merchant, providing service, manage risk and give support.

These companies used to get 20 basis points on an average on each transaction done through debit cards till December 31, 2017. But, the Reserve Bank of India (RBI) rationalised the merchant discount rate and capped it at 0.4 per cent of the transaction value for transactions up to Rs 2,000. Now, the government is supposed to pay 0.4 per cent to banks instead of merchants. Banks, in turn, are responsible to paying all parties in the ecosystem. 

But, emails accessed by Business Standard show that companies are struggling to keep lights on as their prime source of revenue — MDR commissions — are drying up. A company wrote to a major public sector bank saying that it hasn’t received any commission in the last five months which is affecting operations. 

“This is affecting our cash flows and revenue,” the company wrote. In response, the bank representative wrote that the bank hasn’t received any fund from the ministry of electronics and information technology. Hence, it can’t disburse the money. 

This pattern can be observed to be repeating across banks and companies, emails show. 

A private bank executive, speaking on condition of anonymity, said that it has approached the ministry thrice now but the government is not releasing money before it verifies the number of transactions and their value. “They asked for auditor’s report as well as details of transactions and values but it’s not clear how they are ever going to verify digital transactions and when the funds will be released,” the executive said, on condition of anonymity. 

Meanwhile, ICICI Bank refused to respond to Business Standard’s queries over email while an executive from the bank said that the bank has received the money 10 days ago from the government and a delay of two months in receiving money is “normal”. 

“We have received the money just recently and the delay is normal. We are trying to work out the details of commission sharing and the money should be disbursed soon,” the executive said.

A payment firm chief executive officer, however, contradicted these claims and said that all banks including ICICI have been repeating that they have not received any money so far. None of the parties were able to produce documentary evidence to back their claims. 

A spokesperson from Axis Bank, meanwhile, said that the bank has not received money from the government even as it has submitted relevant invoices. “Invoices have been submitted to the relevant authorities and are currently under process for making payments. The bank is constantly engaging with all stakeholders to ensure government subventions are promptly passed on,” the spokesperson said. 

However, it is clear that payment firms haven’t received their dues yet which, according to some estimates, run into billions of rupees. A Business Standard analysis showed that almost Rs 2,500 billion of debit card transactions took place in the last five months. An MDR of 0.4 per cent on just transactions of less than Rs 2,000 make the total amount stuck to be around Rs 5-6 billion. 

Meanwhile, an SBI spokesperson said that bank has received the money from the government but it’s yet to be distributed to partners as it is being processed.