The Reserve Bank of India (RBI) on Wednesday released final guidelines for rationalisation of merchant discount rates (MDR) for debit card transactions, putting in place a framework of rates differentiated on the basis of merchant turnover. The MDR is the charge a merchant pays to a bank for availing card transaction services. As per the guidelines, small merchants, or those with an annual turnover of up to Rs 20 lakh per annum, will be charged a maximum of 0.4% for each transaction made through a physical point of sale (POS) terminal or online and 0.3% for transactions using a quick response (QR) code. The MDR will be capped at Rs 200 per transaction for small merchants. What this means is that for POS transactions, for instance, the MDR will be capped at Rs 200 for transactions of Rs 50,000 or more. On September 19, FE had reported that the government had proposed that RBI should cap the MDR on debit card transactions at Rs 200. For merchants with an annual turnover above Rs 20 lakh, the charges will be not higher than 0.9% for transactions made over a POS terminal or online and 0.8% for QR code-based transactions. The value of MDR for such merchants will have a cap of Rs 1,000. The MDR will be capped at Rs 1,000 for transactions of about Rs 112,000 or more.
For merchants with over Rs 20 lakh annual turnover, a Rs 50,000 transaction will attract an MDR of up to Rs 450, as against Rs 200 for a smaller merchant. The new rates will come into effect on January 1. In a bid to push debit card transactions during the demonetisation exercise, the RBI had on December 16, 2016 capped the MDR on debit card transactions of up to Rs 1,000 at 0.25% and for those between Rs 1,000 and Rs 2,000 at 0.5%, for transactions between January 1, 2017 and March 31, 2017. Though the directive was supposed to be a stop-gap measure to handle the demonetisation-induced cash crunch, it remained in place through 2017. The final guidelines on MDR follow a draft circular on the subject, issued by the central bank on February 16. These guidelines diverge from the draft in that they do not prescribe separate slabs of rates for government entities. Also, the draft guidelines had no mention of rates for QR code-based transactions. Their inclusion in the final guidelines reflects the evolution around payment modes like BharatQR and Unified Payments Interface (UPI), which involve the use of QR codes for merchant transactions. The draft guidelines had also prescribed higher MDRs (0.95% for physical POS transactions and 0.85% for digital POS transactions) for merchants with a turnover of more than Rs 20 lakh. BP Kanungo, deputy governor, RBI, said the guidelines were aimed at widening the network of merchant establishments who will accept digital payments. “We have been guided by twin objectives in this,” he said. “The first is that the acceptance infrastructure will accept it more happily and it should also leave money on the table for the stakeholders, so that they are interested in the game to invest in technology and other things.” According to data sourced from four banks and released by the central bank, the volume of debit and credit card transactions at POS terminals rose 18% between November 2016 and November 2017 to 242 million.