Pay via debit card: Govt wants RBI to cap MDR on digital payments at Rs 200

Has your grocer asked you to pay extra because you wanted to pay using a card?

Have you faced a situation where a merchant, say, a grocer, has asked you to pay extra because you wanted to pay using a card? That is because for every card swipe at a point of sale (PoS) terminal, the grocer has to pay a fee that is calculated as a percentage of the transaction value. Now, the government is working to reduce Merchant Discount Rate (MDR) charges to encourage digital payments. Finance Minister Arun Jaitley on Monday said compulsion of going digital post note ban has become a habit and e-payments will gather pace on account of government initiatives and technology advancement. In view of this, the government has proposed that the Reserve Bank of India (RBI) cap the merchant discount rate (MDR) on debit card transactions at Rs 200, according to a report published in The Financial Express.

 

RBI is yet to release the final guidelines on MDR.

 

According to FE, the ministry of electronics and information technology had in February made a presentation to the central bank suggesting the MDR be rationalised on a “net-cost plus” basis with an upper limit of Rs 200.

 

What is MDR?

 

The MDR is the charge a merchant pays to a bank for availing of card transaction services. Currently, banks are allowed to charge an MDR no higher than 0.25% on transactions of up to Rs 1,000 and a maximum of 0.5% on transactions of values between Rs 1,000 and Rs 2,000. Bigger transactions attract an MDR of 1%.

 

Demonetisation days

 

On February 16, RBI had proposed to drastically cut MDR charges on debit card payments from April 1 with a view to maintain momentum of digital transactions post note ban, especially among small merchants.

 

For small merchants with an annual turnover of Rs 20 lakh and special category merchants, like utilities, insurance, mutual funds, educational institutions and government hospitals, the MDR charge has been proposed at 0.40 per cent of the transaction value.

 

Merchant Discount Rate (MDR) charge, which is levied on debit card transaction, would be even less at 0.3 per cent if the transaction is through digital PoS (QR Code), the RBI had said in a draft circular on rationalisation of MDR for debit card transactions.

 

The existing MDR is capped at 0.75 per cent for transactions up to Rs 2,000 and 1 per cent for over Rs 2,000.