RBI asks banks to bring transparency in merchant service fee

RBI today asked banks to ensure that the merchant service fee (MDR) -- fee that a merchant pays to access lender's payment infrastructure -- is clearly unbundled for different categories of cards for greater transparency.
RBI said it has brought to its notice that in many instances charges for merchants are bundled and a composite fee is levied on merchants irrespective of the type of card used.
This practice hinders adherence to the extant regulatory mandate.
"Further, this not only disincentivises merchants from accepting cards but also gives them scope to indiscriminately pass on the costs to customers in the form of surcharge," the central bank said.

So, in order to bring greater transparency in merchant discount rates (MDR) applicable at merchant level, RBI "advised" that the acquiring banks should ensure that MDR are clearly unbundled for different categories of cards.
Banks have also been asked to enter into separate agreements or annexes within the same agreement for debit, credit and prepaid cards so as to bring in more clarity and transparency.

Banks have also been asked to educate merchants regarding the charges associated with different categories of cards, at the time of acquisition.
The MDR for debit card transaction has been capped at 0.75 per cent for transaction values upto Rs 2,000 and at 1 per cent for transaction values above Rs 2,000.

MDR or Merchant Service Fee (MSF) is the fee charged to the merchant by the financial institution / bank which has set up the POS or card acceptance machine at the merchant location for use of this infrastructure.