New Delhi: Allowing Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions would serve as an enabling provision and is unlikely to lead to a significant increase in charges because of intense competition in the payments ecosystem, said Neelkanth Mishra, Executive Director at the World Bank Group, on Saturday.
In a conversation with IANS, on the sidelines of the 5th Kautilya Economic Conclave here, Mishra said that concerns over MDR leading to widespread fee hikes may be overstated in a free and competitive market.
“It is an enabling provision. Look, this is a free market. Unless someone is afraid that financial firms, banks or payment aggregators will start colluding and raising charges at the same time, there are different ways to handle that,” he said.
“I don’t see this leading to a large-scale increase in fees because it is a free and competitive market. There were firms that remained viable and survived even when they could not charge MDR,” Mishra added.
On the global economic outlook, the World Bank executive identified sharply rising interest rates as the single biggest risk facing global financial markets.
“I would say that the biggest risk for global markets is the rapidly rising interest rates because financial markets are all about the cost of capital,” he said.
According to Mishra, higher risk-free rates tend to depress asset values and can expose vulnerabilities in leveraged positions and collateral-backed lending structures.
“If your yields, the risk-free rate, are going to rise, asset values will come down, and that means that many forms of collateralised loans and many types of leverage that were taken then become unviable or have to be unwound,” he noted.
On India’s vulnerability to global market stress amid elevated oil prices, higher bond yields and geopolitical uncertainties, Mishra acknowledged that the risks are significant but said India remains relatively better positioned than several heavily indebted economies.
“These are very significant macroeconomic risks. I think these are also market risks, so financial markets are starting to get a bit jittery,” he told IANS.
He added that stability would depend either on bond yields easing or risks emerging on the growth front that force a reassessment by markets.
“The only way that this can settle is for either yields to fall or for some risks to emerge on the growth side. There are also countries with very high levels of debt-to-GDP that are far more vulnerable than perhaps India is,” Mishra said.
“So, we have to be on the lookout for external shocks,” he added.
(IANS)
