RBI rationalises framework for Merchant Discount Rate; details you need to know

To promote cashless transactions RBI reduces MDR charges for debit cards

To promote cashless transactions RBI reduces MDR charges for debit cards

In a bid to encourage debit card usage and increase acceptance of debit card payments across a wider network of merchants, the Reserve Bank of India today chose to rationalise the framework for Merchant Discount Rate (MDR) applicable on debit card transactions, based on the category of merchants.

For merchants with annual turnover of more than Rs 20 lakh, a cap of 0.9% is prescribed for physical PoS and online card transaction while 0.8% cap is mandated for QR code based transaction. For QR code-based card acceptance, merchant charge will not exceed 0.3 per cent of the transaction value with a cap of Rs 200.

Maintaining a status quo in its fifth bi-monthly monetary policy of FY18, the RBI on Wednesday rationalised the framework of Merchant Discount Rate (MDR) into three category for debit cards transaction.

At present, MDR for debit card transactions were capped at 0.75% of the transaction amount for value upto Rs 2000 and 1% of transaction amount for value above Rs 2000.

In case of QR-based transactions, charges are set to not exceed 0.80 percent of the total transaction with an upper cap of Rs 1000 per transaction.

"The sustainability of the card business is hampere by high MDR, low card usage, poor telecom infra, lack of incentives to merchants to accept cards, insufficient awareness about the costs associated with use of cash", SBI Research had said. The merchant discount rate is expressed in percentage of the transaction amount.

Banks are also advised by RBI, to ensure that merchants on-boarded by them do not pass on MDR charges to customers while accepting payments through debit cards. However, there is no RBI cap on MDR on credit card payments.

Performance debit card transaction at point of sales (POS) terminal has seen major boost after the announcement of the demonetisation drive. In terms of volume, the trasactions at POS more than doubled to 415.46 million in December as against 236.47 million in November 2016 month. However, that directive was applicable only until March 31, 2017. Regardless of the value of the transaction, the MDR for such merchants cannot exceed Rs 200 per transaction.

The proposed structure is simpler than what RBI had suggested in a draft paper in February.

There were also cases like differential MDR for government transactions and for certain special categories in view of the non-discretionary nature of those expenses.

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