The central bank is yet to release the final guidelines on MDR. According to sources, the ministry of electronics and information technology had in February made a presentation to the central bank suggesting the MDR be rationalised on a “net-cost plus” basis with an upper limit of Rs 200.
In a move to encourage digital transactions, the government has proposed that the Reserve Bank of India (RBI) cap the merchant discount rate (MDR) on debit card transactions at Rs 200, sources told FE. The central bank is yet to release the final guidelines on MDR. According to sources, the ministry of electronics and information technology had in February made a presentation to the central bank suggesting the MDR be rationalised on a “net-cost plus” basis with an upper limit of Rs 200. The ministry’s line of reasoning was that the increase in the volume of transactions as a result of this move would more than make up for what banks lost as MDR.
The MDR is the charge a merchant pays to a bank for availing of card transaction services. Currently, banks are allowed to charge an MDR no higher than 0.25% on transactions of up to Rs 1,000 and a maximum of 0.5% on transactions of values between Rs 1,000 and Rs 2,000. Bigger transactions attract an MDR of 1%.
These rates are based on temporary guidelines issued by the RBI during demonetisation and extended thereafter. On February 16, RBI had put out draft guidelines for rationalisation of MDR on the basis of merchant turnover rather than the present slab-rate based on transaction value. According to those guidelines, merchants with a turnover of under Rs 20 lakh per annum would have to pay a maximum of 0.4% per transaction for using physical point-of-sale (PoS) infrastructure and up to 0.3% for digital PoS. The same slab would apply to some specific categories of merchants providing public goods and services. Government transactions would involve a flat fee of Rs 5 for transaction value between Rs 1 and Rs 1,000 and Rs 10 for transaction value between Rs 1,001 and Rs 2,000. Transactions of higher value would be charged a maximum MDR of 0.5%, with a cap of Rs 250 per transaction. All other merchants would have to pay up to 0.95% for transactions using physical PoS and 0.85% for digital PoS.
Bankers had generally hailed the idea of restructuring MDR on the basis of merchant turnover rather than transaction values. In January, State Bank of India chairman Arundhati Bhattacharya had said the lender was thinking along similar lines. “We are looking at removing MDR for merchants who have a turnover of Rs 20 lakh and below on our own,” she had said.