RBI sets cap on debit card usage fee

The Reserve Bank of India has set a cap on merchant discount rates,or usage fees, for debit card transactions from September 1 to encourage merchants to choose electronic payment mode over cash transactions, executive director G Padmanabhan said.

“What we are struggling to achieve today in the country is whether the merchant on his own must be encouraged to receive a card transaction rather than a cash transaction,” he said on the sidelines of an event here on Monday.

From September 1, RBI has asked banks to cap the merchant discount rate for debit card transactions up to Rs 2,000 at 0.75 per cent and for transactions over Rs 2,000 at one per cent.

RBI has chosen to cap the merchant discount rate rather than touch the inter bank rate, as capping the discount rate would have a much broader impact. “If we are talking about the entire chain, then we have to take that part of the process which will affect the entire chain rather than segmenting the chain. That is a new thought process which we evolved,” he said.

Already, RBI had extended the deadline to September 1 from July 1, which was announced initially, as it received feedback from banks and card companies that such a short time would lead to a high level of manual intervention in such transactions.

Padmanabhan noted RBI was traversing a path no other regulator had tried before, and so was proactively involved in tracking how the move would pan out.

“We hope it will turn out well, but in any case, we are proactively monitoring it,” he said. “As and when there are issues that are happening for the banks or the card companies, we will deal with them on a proactive basis. That is how the regulations have moved in the payments system always.”