RBI reduces merchant discount rates for debit cards

Kelley Robertson

In a bid to encourage electronic payments, the Reserve Bank of India (RBI) has made a decision to cap the Merchant Discount Rate (MDR) applicable on transactions conducted via debit cards from January 1, 2018. MDR is the rate charged to a merchant by a bank for providing debit and credit card services.

For QR code-based card acceptance, merchant charge will not exceed 0.8 per cent of the transaction value with a cap of Rs 1,000.

For merchants with a turnover above Rs 20 lakh (during the previous financial year), MDR will notexceed 0.9 per cent per debit card transaction and MDR paid to the bank can not exceed Rs 1,000. These charges are effective from 1 January 2018, RBI said in a circular. For transactions below Rs1,000, it is 0.25%; between Rs1,000 and Rs2,000, it is 0.5%.

Before that MDR rate did not exceed 0.75 per cent of the transaction amount for a value up to Rs 2,000 and did not exceed 1 per cent for transaction amount for value above Rs 2,000.

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It can be noted that midway through demonetization late November, Prime Minister Narendra Modi had said the note-ban was meant to increase the cashless component in the economy.

RBI in the monetary policy said, "In recent times, debit card transactions at "Point of Sales" have shown significant growth". The value of these transactions rose to Rs3.3 trillion from Rs1.2 trillion. For transactions above Rs 1000 but less than Rs 2000, MDR was kept at 0.50% of the transaction value. The RBI also said it will create a framework for asset-light acceptance infrastructure like QR- code based payment+ gateways. "RBI should have regularized the prevalent MDR structure", said A.P. Hota, former managing director and CEO, National Payments Corp. of India. If the transaction is conducted via a QR code, the MDR has been further reduced to 0.30%. One basis point is one-hundredth of a percentage point.

Earlier in the month of February, the RBI had circulated a draft of MDR seeking public comments and views over it.

For small merchants with turnover up to Rs 20 lakh (during the previous financial year), the charge on debit card payments has been set to not exceed 0.40 percent, with an upper cap of Rs 200 per transaction. "This new rule will leave money on the table for merchants so that they add more technology". This definitely should be good for SMEs to adopt digital payments.