Last month, India’s Finance Minister Nirmala Sitharaman announced that businesses with annual turnover of 500 million rupees will not have to pay a merchant discount rate on debit card and other digital modes of transactions, excluding credit cards. The plan aims to spark adoption of electronic payments in the country, according to Reuters.
For debit cards, the fees are, on average, between 0.40 percent and 0.80 percent of the transaction amount. As of May there were 824.9 million debit cards in circulation in India, compared with 48.9 million credit cards.
“I find the logic a bit fallacious because the cost is not free … I am a firm believer in low economics, but no economics student can believe in no economics,” T.R. Ramachandran, Visa’s India and South Asia head, said earlier this week at an industry conference, according to Reuters.
Ramachandran added that if the government, the merchant and the consumer are all saving money through the use of electronic payments, then the stakeholders need to be fairly compensated.
While Sitharaman had said that the Reserve Bank of India and other banks would take on any costs, industry officials say it is still unknown who will actually take responsibility. But banks fear that the no-fee debit card plan could impact their fee revenues as they continue to deal with bad loans of about $150 billion.
The review will determine if and when WhatsApp can enter the country’s crowded digital market, where it will compete with more than 80 rivals on the NPCI platform, including Google and Amazon. India’s digital payments market is expected to hit $1 trillion by 2023, according to a report by Credit Suisse Group AG.