Cabinet approves Subsidizing MDR Charges on Debit Card

For representative purposes. Source Pixabay

For representative purposes. Source Pixabay

The central government will bear transaction costs applicable to debit card / BHIM UPI / Aadhaar enabled payment system (AePS) for a value up to and including Rs2,000 for a period of two years beginning 1 January 2018, an official release stated today.

"For all the transactions less than Rs 2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR", the minister said, adding this will lead to greater adoption of digital payment modes for such transactions.

In a major push to encourage digital payments in the country, the Centre will repay Merchant Discount Rate (MDR) to sellers and banks for two years for transactions under Rs 2,000.

When payment is made at a merchant point of sale, MDR is payable by the trader to the bank. "With a view to giving further fillip to acceptance of debit card payments for purchase of goods and services across a wider network of merchants, it has been chose to rationalise the framework for Merchant Discount Rate (MDR) applicable on debit card transactions based on the category of merchants", a statement issued by RBI said. However, there is no RBI cap on MDR on credit card payments.

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MDR is the cost paid by a merchant to a bank for accepting payment from their customers via credit or debit cards every time a card is used for payments in their stores.

For merchants with turnover of over Rs 20 lakh, the MDR cap will be 0.9 percent or Rs 1,000 per transaction, whichever is lower.

As per the latest notification, MDR charges for small merchants with an annual turnover of up to Rs 20 lakh has been fixed at 0.40 percent. For digital transactions via a QR code, the MDR was further reduced to 0.30%. The amount earned by bank as MDR is given to payment service providers such as Visa, MasterCard or NPCI. "Capping of Bank Interchange fees will provide big boost to digital payments".

Debit card usage volume has tripled to 2.4 billion transactions in 2016-17 from around 800 million in 2014-15. Referring to the sharp increase in Digital Transaction in the country, he said that from April to September 2017, digital transaction of only 2 lakh 18 thousand and 700 crore has been done with debit card only.

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