SBI denies commissions on digital transactions to payment firms

India’s largest public sector bank just tightened its purse strings when it comes to sharing revenues with its payment partner firms for digital transactions. The bank makes use of services of online payment aggregators, firms which enable people to pay through State Bank of India (SBI) gateways using their debit cards and get paid a share of the commission that the bank collects. 

In an email sent on May 14, SBI informed its payment partners that it is not going to share any fee with them if the transaction going through its payment gateway is of less than Rs 1,000 and originated from a non-SBI debit card. 

The email, reviewed by Business Standard, gives no rationale for taking such a decision even as the subject line calls it “rationalisation of merchant discount rate”. The merchant discount rate (MDR) is the cost of a digital transaction usually charged to a merchant every time a customer swipes a card. This MDR is distributed between involved payment players, including banks, card networks, and payment aggregators. 

However, to give a fillip to digital transactions, the Government of India (GoI) decided to reimburse MDR on customer transactions up to Rs 2,000. This is done through eight major banks, including SBI, which receive the money from the government based on actual transaction volumes and they are responsible for distributing it to payment firms depending on their contracts and policies. 

The email from SBI says as much and claims that the bank is indeed receiving 0.40 per cent of each transaction worth up to Rs 2,000. The Reserve Bank of India recently cut MDR on transactions and capped it at 0.4 per cent for debit card transactions of value up to Rs 2,000, which the government is now responsible for paying. 

“As you are aware that the bank is claiming MDR at 0.40 per cent from the RBI/GoI for transactions up to Rs 2,000. First such claim will be lodged during this month,” the email says and adds that the bank has decided to “suitably compensate” payment aggregators for transactions going through SBI payment gateway. 

Under the new revenue-sharing arrangement, aggregators will hardly make any money if the consumer’s debit card is not an SBI one.  For instance, there is no commission sharing for transactions up to Rs 1,000 and even for those between Rs 1,000 and Rs 2,000, the bank will only share 0.05 per cent of the transaction value and applicable taxes. However, the bank pays 0.15 per cent for transactions done through its own cards. 

This is set to hit the aggregator industry in a big way as companies such as PayU, CCAvenue, and BillDesk process payments worth billions of rupees in digital payments each month and almost all payment aggregators have an SBI payment gateway. 

“We are going to see a substantial impact in our top line and profitability because of this anti-industry move as SBI payment gateways are connected to almost every big e-service and a lot of transaction flows through their pipes,” said a payments company chief executive officer (CEO), confirming receipt of the email from SBI. 

He added that this circular is applicable from January 1, which means it retrospectively impacts five months of business that payment firms did with SBI without having clarity on their share of commission. 

“This is not how you expect a bank as big as SBI to behave, a few hundred millions could be loose change for them, but our businesses depend on this revenue stream. We were not consulted at any point during the process,” he added. 

According to estimates, SBI operates more than 800,000 point-of-sale machines and its payment gateway is used by seven big aggregator companies. RBI data shows that India has almost 900 million debit cards, which see monthly transactions of about Rs 500 billion. Of these, almost 60 per cent transactions are less than Rs 2,000, which the government is currently subsidising. 

Another CEO of a payment aggregator company, who received this email, said that the average transaction size of debit cards in India is Rs 800 to Rs 1,000 and thus, it impacts about 75 per cent of their all transactions. 

“It is going to be a big hit on our business if they stop paying us money just because a customer has a different bank’s card,” he said. “There is definitely a differential that every bank levies on its own card transactions versus others, but SBI has taken it to zero, which is our problem.” 

Three executives confirmed that the payments industry professionals are likely to approach SBI and express displeasure with this move. SBI did not respond to repeated emails and messages sent by Business Standard till the time of going to press.