Bank e-payment to suffer blow post Sitharaman’s announcement

Merchants, consumers would do away with bank e-payments and switch to more profitable UPI and local e-payment methods

Payments industry. One of the more clinical, crucial and complicated industries in the country. Also, one of the few antiquated industries in the country, is now facing a complete rehash – considering the major utility, competition and entrance of private players in the sector.

With 2019’s budget, the government’s move to do away with bank charges on electronic payments for businesses with an annual turnover of Rs 50 crore would hit Mastercard and Visa hard and create a scope for UPI and other local e-payments in the payments industry.

Large retailers (with a turnover of over Rs 50 crore) are the mainstay of retail credit card transactions. These retailers have been paying fees by way of merchant discount rate (MDR) of close to 2%.

The move coupled with the push by players like UPI, BHIM pay, PayTM, PhonePe, Google Pay, Amazon Pay as well as several other local players would limit the bank traction in the country as well as limit the contraption of charges levied by banks.

The finance minister Nirmala Sitharaman in her budget said that it would be mandatory for such large companies to provide their customers with low-cost electronic payment options. These include Bhim UPI (unified payments interface), UPI-QR Code, Aadhaar Pay, certain debit cards, NEFT (national electronic funds transfer), and RTGS (real time gross settlement).

The budget also ensures that the customer does not pay a fee for using any of these channels and the charges are borne by banks and the RBI. This means that the business now has an electronic payment channel that will improve its margin by 2%.

The new section, 269SU, of the Income-tax Act requiring large businesses to provide a facility for acceptance of payment through electronic modes will come into effect later this year from November 1, 2019.

With the move, merchants and customers will use UPI-based platforms increasingly, simplifying payments – getting them onboard through the likes of PhonePe, Paytm and Google Pay and other companies mapped by BharatQR – which can be accessed by any bank customer.

According to Anand Ramachandran, CFO, Ingenico ePayments India, the two moves – no MDR for businesses above Rs 50 crore turnover and 2% tax deduction on cash withdrawals over Rs 1 crore per annum are a further nudge to industry to lower the entry barrier to digital payments.

“The proposal to set up a payment platform for MSMEs for online presentation and payment of invoices will not only help cash flow but also give a huge boost to digital payments, as the entire supply chain will now be incentivised to go digital. Also, the platform opens up possibilities for accessing lower cost funding,” Ramachandran added.

The move is supposed to create a more financially inclusive market, which depends on the democratization of tech and initiatives by the government to bolster India’s payment industry as well as facilitate transactions and the movement of currency. The only question here, would be the application of the said initiative as well as the reception and reaction of banks to the dynamic and evolving finance industry.