You are here: Home » Economy & Policy » News
Business Standard

Govt to bear debit card charges on digital transactions of up to Rs 2,000

The outgo on account of reimbursement for MDR charges is estimated to be Rs 2,512 cr over the next two years

Nikhat Hetavkar & Advait Rao Palepu  |  Mumbai 

Image via Shutterstock
Image via Shutterstock

In an effort to boost digital payments in India, the government has decided to bear the merchant discount rate (MDR) charges for up to Rs 2,000 made through debit cards, or Aadhaar Pay for two years. The decision will be effective from January 1, when the Reserve Bank of India’s (RBI’s) revised guidelines on the MDR come into force. The MDR is the rate charged to a merchant by a bank for providing debit and credit card services. It is expressed as a percentage of the transaction amount. The outgo on account of reimbursement for MDR charges is estimated to be Rs 2,512 crore over the next two years.

The amount to be reimbursed to banks could be Rs 1,050 crore in FY 2018-19 and Rs 1,462 crore in FY 2019-20 for of value less than Rs 2,000, said the Union government in a press statement. The government has set up a committee to look into the industry cost structure of such transactions, which will form the basis to determine the levels of reimbursement. “The compensation to banks will help cover the costs incurred in managing card payment operations. This should give push to volumes in digital banking space and enable to beef up merchant acquisition infrastructure,” said P K Gupta, managing director of retail and digital banking, State Bank of India. Govt to bear MDR charges on digital transactions of up to Rs 2,000 Deepak Chandnani, managing director of Worldline, and Middle East, said, “Benefits to merchants will be two-pronged – one, they will bear zero cost for electronic debit card transactions; two, it will reduce the need and cost of handling cash at the outlet.” The average ticket size for debit card is Rs 1,400-Rs 1,500, bringing the MDR for merchants to zero, according to Vishwas Patel, co-chair of the Payments Council of India. “In tier-2 and tier-3 cities, the cost of MDR was the biggest pain point for digital Now instead of banks trying to push, it will be merchants asking for POS machines -- and that’s how the paradigm will change,” he added. Currently, for below Rs 1,000, the MDR is 0.25 per cent; the between Rs 1,000 and Rs 2,000 attract an MDR of 0.5 per cent; and 1 per cent MDR is levied on of Rs 2,000 or more. Under the revised rules, for merchants with annual revenues of less than Rs 20 lakh, the MDR is 0.4 per cent of the transaction value, or Rs 200, whichever is lower. For all others, the MDR is at 0.9 per cent of the transaction value, or Rs 1,000, whichever is lower. Earlier this week, in defense of the regulator’s decision, RBI Deputy Governor B P Kanungo said all of the large acquiring banks were incurring losses on account of the MDR as they were unable to recover the cost of setting up the infrastructure. The government’s decision may come as a respite for retailers, though there are still some issues that need to be addressed. Devang Neralla, chief executive of Atom Technologies, said the development didn’t solve the problem of equitable distribution. He added receiving the reimbursement from the government was difficult.

First Published: Sat, December 16 2017. 01:29 IST
RECOMMENDED FOR YOU