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Indian retailers with payments volume of at least Rs 50 crore ($7.3 million) a year will no longer have to pay banks a fee of close to 2% on electronic payments, according to the Times of India.
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Banks that previously charged merchants the fee will now have to "absorb" it since the government has banned them from doing so, per The Economic Times.
Meanwhile, the government is also reportedly requiring licensed retailers to be able to accept QR code payments and transactions through the country’s Unified Payments Interface (UPI), which enables users to send and receive bank-based payments from their smartphones, according to ET.
Here’s what it means: These new requirements should promote merchant acceptance of digital payments in India, likely at the expense of card networks.
The elimination of fees on digital payments and mandate for in-store acceptance of such transactions incentivizes merchants to take them. Getting rid of the fee improves the margins for digital transactions, as they will cost merchants less, while the costs of card transactions — to which the fee doesn’t apply — will remain unchanged.
The promise of more profitable transactions should encourage merchants in India to favor accepting digital or mobile payment methods that rely on the UPI, for example, over those that run via card rails, potentially boosting digital payments providers’ — like Paytm, WhatsApp, or Google Pay — share of payments in the country.
But for card networks, which have been angling to grow in the market, transaction volumes will likely stagnate or even shrink in the region.
The bigger picture: The payments opportunity in India is immensely valuable, but the government continues to alter the playing field with new regulations.
- India’s digital payments market is projected to be worth $1 trillion by 2023, attracting a variety of companies. Factors like the country’s growing internet penetration, its demonetization initiative in 2016, and improvements to the UPI — in conjunction with its 1.37 billion population — have given India tremendous growth potential. This has encouraged both domestic companies like Paytm and major multinational firms like Visa, Google, and Amazon to invest in the market in the hopes of capturing a significant share of its payments volume going forward.
- The Indian government has complicated the path to success in the market in a number of segments, especially for multinational companies.In addition to the moves it’s made to make digital payments more attractive for merchants, the Indian government also requires companies to store consumer data domestically and introduced regulations that impact the ability of e-commerce marketplaces with foreign investment to operate. These decisions have made succeeding in India more difficult for card networks, multinational mobile payments players like WhatsApp Pay, and e-commerce companies including Amazon and Flipkart. The opportunity to compete in India is likely still worth the effort given its growth potential, but the continuously changing landscape may frustrate companies and hinder their ability to thrive in the market.
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