Government considers cutting MDR charges on card payments

The government is looking to reduce Merchant Discount Rate (MDR) charges to encourage digital payments, Niti Aayog Chief Executive Amitabh Kant said on Tuesday.

"We are pushing digital transactions. Our aim is to bring down MDR charges. Also, if volume of transactions increase, MDR charges will come down," Kant told reporters here while briefing about the Lucky Grahak Yojna (LGY) for consumers and Digi-Dhan Vyapar Yojna (DVY) for merchants launched post demonetisation to incentivise and promote digital payments.

"We are examining RBI's draft circular on MDR. There are challenges to bring MDR rates down... We will meet those challenges," he added, referring to the Reserve Bank of India (RBI) circular last week on rationalisation of MDR for debit card transactions.

Proposing to cut MDR charges on debit card payments from April 1, the RBI proposed an MDR charge on debit card transaction at 0.40 per cent of the transaction value for small merchants with annual turnover of Rs 20 lakh and special category merchants like utilities, insurance, mutual funds, educational institutions and government hospitals.

The central bank said MDR charges would be even less at 0.3 per cent if the transaction is through digital mode using the QR Code.

The scrapping of high value currency notes of Rs 500 and Rs 1,000 on November 8 created an unprecedented crash crunch, with people across the country queuing up outside banks and ATMs to withdraw money.

Finance Minister Arun Jaitley told Parliament earlier this month that the RBI is working to reduce the MDR for debit card transactions above Rs 2,000.

"The RBI is deciding on this...the work is in progress. I am sure as volumes (of digital transactions) are increasing, the charges will come down," Jaitley told the Rajya Sabha during Question Hour.

Jaitley said that under the Payments and Settlements Act, the RBI has recently fixed the MDR rate at 0.25 per cent for transactions up to Rs 1,000, while for transactions up to Rs 2,000 it has been fixed at 0.50 per cent.

These charges have been introduced for the period from January 1, 2017, and will be applicable till March 31, 2017.

As per the RBI's rate structure announced in 2012, the MDR for transactions valued above Rs 2,000 has been capped at 1 per cent.

The RBI also announced last week that it will start reimbursing MDR charges to banks for payments made through debit cards of tax and non-tax dues to the central government since January 1.

The Centre had, in December, decided to reimburse banks' MDR charges on taxes and receipts paid through debit and credit cards.

--IANS

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