Fintechs pick up MDR tab, enjoy merchant’s float

In a push to expand their merchant networks, fintech intermediaries have come up with an innovative settlement scheme by which they waive the merchant discount rate (MDR) on offline card transactions. This allows 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 until the transaction is settled.

To be sure, merchants would opt for a waiver of the MDR, typically 2-3% on the value of the purchase, only if they are severely strapped for cash. Else, it would not make sense for them to give up the float.

Industry sources said BharatPe and Paytm are among the companies offering this form of settlement. Emails sent to the two companies did not elicit responses till the time of going to press.

Mohit Gopal, senior VP and strategy head, PayU India, said that the practice is not necessarily wrong. “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 said.

An executive with a fintech, which offers this facility, explained that when the card is swiped by the customer the merchants have two options: Opt for a regular settlement or receive the money within 15 days, by using 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 said. His company believes MDR on card-based transactions is heading for a 2% level, except for Rupay, where MDR is already zero.

Sachin Shettigar, EVP, (merchant onboarding, risk and settlement), Mswipe, told FE the company does not offer merchants a deferred settlement facility but pays all its merchants on a T+1 basis and, for QR transactions, on the same working day. “This is in line with the RBI 2009 directives for merchant payments by intermediaries,” Shettigar said. The only exception is for online transactions where payments can happen on a T+1 basis with the T depending on the agreement with the merchant.

Since RBI’s 2021 guidelines 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 option remained unanswered. A former RBI executive said that the innovation bears marks of a credit product. “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 said.