New Delhi: India’s rapidly growing payment industry is seeking easier entry norms for non-banking entities to install credit and debit card swiping machines at merchant outlets that will foster competition and cut down user charges, a goal the government is pursuing to tide over the cash crunch induced by recall of high-value currency notes.

Payment companies are also pitching for lower tax on income generated through digital transactions.

Executives, however, cautioned that any artificial reduction of merchant discount rate (MDR) on credit and debit cards payment through legislation will not work as it will affect the cost-benefit balance of issuing swiping machines.

Both banks and non-banking entities such as PayU, Mswipe, Ezetap and Oxigen issue swiping machines but the market is dominated by banks.

The chief ministers’ panel on digital payments led by Andhra Pradesh chief minister Chandrababu Naidu had on Tuesday disapproved of MDR levy by card issuers and recommended to Prime Minister Narendra Modi to lower or eliminate MDR for all digital payments to government entities.

The panel also recommended that Aadhaar-enabled payment systems which rely on biometrics should be incentivized rather than discouraged by charging MDR.

Naveen Surya, chairman, Payments Council of India (PCI), an industry body working closely with the government and the RBI, said artificial controls do no good and advocated for a level-playing field.

The market should be opened up to a larger number of non-banking entities allowing installation of point-of-sale (POS) machines, he said.

“If the market is opened, more and more entities will supply and charges will drop automatically. Lowering the charge without scale will have a negative impact,"added Surya, who is also the managing director of ItzCash Card Ltd.

The government on Tuesday provided highlights of the panel’s recommendations, but did not release the complete report. The highlights said that per capita cashless transactions by non-banks a year in India was merely 11 compared to 728 in Singapore, 355 in the UK and 142 in Brazil.

“It is very essential to find revenue alternatives not dependent on MDR i.e. using smartphones for payments, which requires low capital expenditure for the payment infrastructure, “said Sunil Kulkarni, deputy managing director, Oxigen Services (India) Pvt. Ltd, a payment company.

Surya said that tax rates applicable to the merchants should be lowered as their revenue from digital transactions increases.

The RBI had already lowered the MDR rates on December 16. The MDR for debit card payments, including for payments made to government, was capped at 0.25% for transactions up to Rs1,000 and 0.5% between Rs1,000-2,000.

However, there is no RBI cap on MDR on credit card payments. RBI said reduced charges will “come into effect from 1 January 2017 and shall be applicable till 31 March 2017".

The existing MDR cap before January 1was 0.75% for transactions up to Rs2,000 and 1% for over Rs2,000.

According to a July, 2016 report by the Boston Consultancy Group, market for cashless payments will grow 10 times by 2020 to reach $500 billion.

Gireesh Chandra Prasad contributed to the story

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