MDR On UPI Is Back! 0.40% MDR Is Still The Lowest Amongst All MDR Regimes: PhonePe | CNBC TV18

Thanks, Rishu. Yeah, it has been a long time coming for the sector. As PCI, Vishwas, others have mentioned, over the last decade, the industry has invested almost $5 billion of equity capital or just balance sheet losses to grow UPI into the behemoth it is. Right, almost 500 million Indians have been using UPI, and it continues to be free for all of them. And we want to get another 500 million Indians on UPI. This requires, obviously, a pretty serious amount of capital investment world over across sort of 200-plus countries. The standard norm has been that the merchants, who are the beneficiaries of a cashless economy, absorb this cost through MDR. In fact, India was the outlier until yesterday. It was the only market in the world where there was no MDR on the largest payment network. So from an industry standpoint, this is obviously a very welcome move. I'm obviously looking at what's happening on social media. I'm looking at what's happening in the media. I think people don't necessarily appreciate enough the different kinds of expenses that players like us, payment aggregators, banks, NPCI even, incur. There are chargeback costs by regulation that apply on the payment aggregators. There's a lot of risk and fraud mitigation expense that goes in. We have at PhonePe, we've invested now, we have almost 30,000 servers. We're talking several thousand crores of just capex that has gone in. Just please recognize, we celebrate UPI all the time, but when you're doing 700, 800 million transactions a day at a network level, that's very, very serious investment. And then to add to all this, you now have the AI era with all of its attendant madness in terms of cybersecurity risk, network risk. So we are all investing more than ever. Compliances have gone up more than ever. You might remember a couple of years ago the regulator made it mandatory for all merchants to be re-KYC'd, and this is banking-level KYC. So the costs have just been escalating linearly as UPI grows, and I think even a 0.4%, 4% MDR, which by the way is still the lowest of all MDR regimes in the world, but even this number at India's population base should hopefully generate meaningful revenue which will help offset a lot of our expenses. And I don't see why digital payments should be different than any other sector. The fact is, any economist will tell you, for a sector to thrive in any country, market economics have to play out, and this is the digital payments industry's moment after a long, long time.

It's a little too early to really size up the incremental pool because, as you probably saw in the circular, there's all these sectoral carve-outs — OMCs, bill payments, broking, mutual funds. So we'll have to actually sit team by team and try and figure out what is actually the cost structure to us going to be, what's the revenue structure like. But it's hopefully material. For a player of our scale, it is important that we run the merchant business in a viable manner, independent of anything we do on the consumer side, sort of cross-subsidizing. I know a lot of people think that our consumer side might subsidize our merchant side; it doesn't work that way. We're large on both sides, and both P&Ls have to run independently and in a profitable manner.