The Reserve Bank of India (RBI) on Wednesday reduced the Merchant Discount Rate (MDR) for debit card transactions and prescribed separate cap for small and large merchants based on their annual turnover. MDR is the rate charged to a merchant by a bank for providing debit and credit card services.
"We thought a further push to debit card usage is needed and we chose to rationalize MDR which is meant to widen the network of merchant establishments who use debit cards", said B.P. Kanungo, Deputy Governor, RBI.
Charges for QR code-based payments for such merchants have been set to not exceed 0.30 percent of the total transaction, or Rs 200 per transaction.
As per the draft guidelines issued in February 2017, the MDR has been proposed at 0.40 percent 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.
Meantime, other merchants having turnover above Rs 20 lakh, will charge MDR of 0.90% ( MDR cap of Rs 1000 per transaction) at POS including online card transaction.
The revised rate is aimed at achieving the twin objectives of increased usage of debit cards and ensuring sustainability of the business for the entities involved, the release said adding a revised instruction will be issued later.
"A differentiated MDR for asset-light acceptance infrastructure and a cap on absolute amount of MDR per transaction will also be prescribed", it said.
The draft also proposes that banks will ensure that all merchants display the signage "No convenience or service charge is payable by customers". However, that directive was applicable only until March 31, 2017. "RBI should have regularized the prevalent MDR structure", said A.P. Hota, former managing director and CEO, National Payments Corp. of India. Regardless of the value of the transaction, the MDR for such merchants cannot exceed Rs 200 per transaction.
Following the demonetisation drive a year ago, when currency of Rs 500 and Rs 1000 denomination was withdrawn from circulation, MDR was further reduced for transactions up to Rs 1000, to 0.25% of the transaction value.