In a push to expand their merchant networks, fintech intermediaries have come up with an revolutionary settlement scheme by which they waive the merchant discount price (MDR) on offline card transactions. This makes it possible for offline merchants to opt for a delayed settlement of a transaction by not shelling out the MDR rather than settling it on a next-day basis. The payment intermediary has access to the merchant’s float till the transaction is settled.
To be sure, merchants would opt for a waiver of the MDR, commonly 2-3% on the worth of the acquire, only if they are severely strapped for money. Else, it would not make sense for them to give up the float.
Industry sources stated BharatPe and Paytm are amongst the providers providing this type of settlement. Emails sent to the two providers did not elicit responses till the time of going to press.
Mohit Gopal, senior VP and tactic head, PayU India, stated that the practice is not necessarily incorrect. “On the offline side, this does happen. As long as it makes business sense between the fintech and the merchant, it’s fine. If it’s a merchant with strong cash flows, then this is an acceptable thing to them,” he stated.
An executive with a fintech, which presents this facility, explained that when the card is swiped by the client the merchants have two choices: Opt for a frequent settlement or acquire the income inside 15 days, by applying the app. “Beyond 15 days, we have waived off the MDR charge. We pay the charge to the concerned bank for all transactions,” the executive stated. His enterprise believes MDR on card-based transactions is heading for a 2% level, except for Rupay, exactly where MDR is currently zero.
Sachin Shettigar, EVP, (merchant onboarding, threat and settlement), Mswipe, told FE the enterprise does not offer you merchants a deferred settlement facility but pays all its merchants on a T+1 basis and, for QR transactions, on the exact same working day. “This is in line with the RBI 2009 directives for merchant payments by intermediaries,” Shettigar stated. The only exception is for on-line transactions exactly where payments can come about on a T+1 basis with the T based on the agreement with the merchant.
Since RBI’s 2021 recommendations on the regulation of payment aggregators and payment gateways are not applicable to offline players, fintechs can use their discretion for settlement practices. Emailed queries sent to the RBI on its stance on the 15-day offline settlement choice remained unanswered. A former RBI executive stated that the innovation bears marks of a credit solution. “If this is happening then it’s quite surprising because it will also involve banks and the card networks who are prone to be more compliant than fintechs. I don’t think the RBI will look upon this kindly,” he stated.