The Reserve Bank of India, In order to promote digital payments, came out with differentiated merchant discount rates (MDR) for debit card transactions, prescribing separate caps for small and large traders.
The shift is aimed at giving a boost to the digital transactions in the country, as the government is not seeing any expected result despite giving a major thrust to digital payments.
It is expected that introduction of differentiated MDR will help increase the acceptance of debit card usage and it will also bring down the cost of transactions for small merchants.
MDR is the rate charged to a merchant by a bank for providing debit and credit card services.
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Highlights of RBI decision
According to the latest notification, MDR charges for small merchants with a yearly turnover of up to Rs 20 lakh has been fixed at 0.40 percent with a cap of two hundred rupees per transaction by debit cards through Point of Sale (PoS) machines or online transactions.
However, the charge will be 0.30 percent subject to a cap of two hundred rupees per transaction for accepting payments via QR (quick response) code based transactions.
If the yearly turnover of a merchant is more than Rs 20 lakh, 0.90 percent MDR charges would be applicable with a cap of Rs 1000 per transaction. And the charges will be 0.80% with a similar cap if the transaction is through QR code.
These guidelines will come into effect from 1st January 2018, and it would be the responsibility of the banks to make sure the MDR levied on the merchant does not go beyond the prescribed cap.
Objectives of these guidelines
As per the Reserve Bank of India, rationalisation of the charges is being undertaken with a view to attaining the twin objectives of encouraging debit card acceptance by a wider set of merchants, especially small traders, and ensuring sustainability of the business for the entities involved.
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