Thread by @logic

#CashlessConsumer Much has been talked about #ZeroMDR amidst lot of panic based misinformation, half truths.

1.1.2020 marked 3 significant changes to payment industry all of which have deep implications. #Thread

Facts first and opinions later.

On 30 Dec, FinMin clarified provisions in Finance Act relating to digital payments

1. 269SU meant for large companies > 50 Crores, mandating to accept "prescribed modes"

2. 271DB - Penalty for violating 269SU

incometaxindia.gov.in/communications… - Link to notification.

269SU makes #ZeroMDR, but important to note its applicable only for large businesses and only for "prescribed modes"

Prescribed modes came via incometaxindia.gov.in/communications…

What this means is businesses for which 269SU applies, have to accept RuPay and UPI mandatorily.

This by itself is stupid, because not all business need to be consumer facing and why should they accept card / UPI electronic payments when they are B2B.

Secondly, since the #ZeroMDR applies only for these prescribed modes for these companies, they will not offer any special discount but instead get to profit extra, because banks now don't earn a revenue of these txns.

But cost of goods / services remain same because they still accept using other modes where #MDR exists. So consumer doesn't get benefit and all that happens here is forced expansion of RuPay / UPI acquisition through Income Tax dept.

The 2nd announcement was stopping the subsidy meant for small merchants for low value transactions. Incidentally, this circular incorrectly linked the CBDT circular to imply #ZeroMDR on the modes to everyone (as against to only 269SU entities) and cancelled it.

That Meity might be justified to stop subsidy to industry (efficiency of which has not been studied, there have been complaints of subsidy not passed on to aggregators, leave alone merchants / consumers). But citing CBDT notification was incorrect.

₹654 Crore was how much tax payer money was spent as subsidy to promote #DigitalPayments in 2018. 2019 figures will come up shortly.

https://twitter.com/logic/status/1111548016991694848

While 269SU expands specific payment system acquisition availablity where it is mostly about those networks (and not general availablility),

Meity subsidy removal will hurt banks expanding to tier-3/4 where there isn't any money and 269SU barely applies

The third and IMO *real* #ZeroMDR move that is in effect from 01.01.2020 is actually NEFT. Much has not been spoken about on this, but this has serious implications for industry. Together with 24x7 availability, NEFT can now pose serious challenge to #UPI P2P

A regulator operating a near realtime (30 min windows) and offering it / mandating participants to offer it free naturally means, the only arbitrage #UPI has is availability / UX, 30 min window for P2P. This will mean over a longer term #UPI P2P volumes will move to NEFT

Infact, there is an anti-competitive element here and is being fought hard in #FedNow proposal in US as individual networks can never compete against regulator run network. I would agree too and NEFT can eat significant pie of these payment cos too!

IMO, while 269SU can still be legal, the notification by CBDT on what constitutes "prescribed payment modes" is arbitrary, more so when it doesn't mention state run (regulator run) payment systems NEFT & RTGS and mandates specific pvt networks. Clear nepotism that is illegal

Meity is well within its ability to stop subsidy, especially when we don't have data to show direct correlation / impact of the subsidy. We need more #opendata for evidence based policy making. There needs to investigation of transmission of this subsidy too for 2017-19.

The real game changer is NEFT going 24x7 and getting 0 rated silently. This will have unforeseen downstream effects.. Overall a bumpy start to 2020 for #DigitalPayments