New merchant fee rules could force Google Pay and Paytm to adjust strategies

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The Indian government moved to block merchant discount rates (MDRs) - the rates charged to merchants on transactions - on digital transactions via RuPay cards and the country's Unified Payments Interface (UPI) as of January 1, 2020, per Inc42.

For context, the UPI is a network that enables mobile bank-to-bank transactions. Removing these fees could make digital payments more attractive to merchants than other payment options that still carry additional fees, including those from foreign card networks, potentially boosting digital payment acceptance in India. But the lack of revenue from transactions could impact top digital payments companies in India, like Paytm and Google Pay.

Paytm is adding new products for merchants that could help it find new revenue and address its losses.

Paytm debuted an "All-in-One" point-of-sale (POS) solution that could boost its appeal to merchants. The POS tool accepts payments via the UPI, Paytm wallet, as well as credit and debit cards, and has been tested by over 150,000 merchants, according to Inc42.

The solution can also generate QR codes, print invoices, track cash payments, handle deferred payments, and help with customer management, among other capabilities. The offering's potential to handle all of a merchant's payment needs could deepen Paytm's connection with its existing merchant base and attract new sellers, especially because the device appears to work in several contexts since Paytm noted that it piloted the device for bus ticketing services, parking management, home delivery, and in other spaces.

This is part of Paytm's effort to court merchants and derive revenue from them, and it's particularly necessary as the company tries to boost revenue without an MDR and limit its losses. Paytm is aiming to cut its losses by over half in the next two years - it posted net losses of approximately $549 million in its fiscal year ended March 31, 2019 - and part of its initiative to do so includes building out its merchant network and winning revenue from them, per The Economic Times. Providing solutions like its new POS offering and payment management tools may build out its network and give it new revenue streams, helping it improve its bottom line.

Meanwhile, Google is looking to use its learnings in India to revamp its payment offerings globally, possibly to seek new revenue opportunities now that it can't implement an MDR in India. Alphabet CEO Sundar Pichai noted on the company's earnings call that its launch in India was successful and that its learnings from that will help inform global payment product improvements in 2020.

Google Pay is a top UPI transaction driver, but without an MDR it may struggle to bring in revenue in the market. This may be why the company is looking to revamp its payment capabilities beyond India, and might help explain why Google suggested the US Federal Reserve model its forthcoming real-time payments (RTP) network off of the UPI.

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