Why Petrol Pumps versus Banks clash has punched a big hole in PM Modi’s cashless economy dream

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New Delhi | Published: January 9, 2017 1:55:15 PM

Prime Minister Narendra Modi's cashless economy dream has probably hit a big hurdle, unfolding in the form of a clash between petrol pump owners and banks.

 petrol pumps, petrol pump versus banks, demonetisation, card-based payments, note ban, petrol pumps to stop taking cards, petrol pump vs banks, petrol pumps banks , banks petrol pumps, Delhi Petrol Dealers Association,DPDAOn Sunday midnight, the petrol pump dealers announced they would stop accepting debit and credit cards in protest against the banks’ decision to levy extra 1% charge per transaction from them. (Representative image/Reuters)

Prime Minister Narendra Modi’s cashless economy dream has probably hit a big hurdle, unfolding in the form of a clash between petrol pump owners and banks. Reason: Why should petrol pump owners or customers pay extra surcharge if they can avoid doing that by using cash for transactions?

The clash shouldn’t be seen just as having the potential to affect cashless transactions at petrol pumps, but its after-effect could be seen at other merchant outlets also as people may like to avoid using debit or credit cards to escape the surcharge. With cash in short supply, demonetisation may then take another hit.

On Sunday midnight, the petrol pump dealers announced they would stop accepting debit and credit cards in protest against the banks’ decision to levy extra 1% charge per transaction from them. The clash has been postponed for the time being until January 13 and the government now needs to think something out-of-the-box to avert a slowdown in the cashless economy campaign. In case there is no immediate solution to the crisis, people would be forced to depend entirely on cash as the dealers would not like to pay 1% charge from their margin.

In a bid to promote cashless transactions after demonetisation, the government had waived off the Merchant Discount Rate (MDR) on fuel purchase for consumers. However, after the expiry of the 50-day window, the banks have decided to levy MDR on petrol pump owners to recover their losses after demonetisation. This means petrol pumps have to bear 1% charge on all credit card transactions and between 0.25 per cent and 1 per cent on all debit card transactions.

The MDR is the fee merchants have to pay to banks every time a card-based payment is made. According to experts, the MDR is divided into three parts for a) Bank installing the point of sale machine (PoS) terminal; b) network providers like Visa and MasterCard; c) the bank whose card is used for the transaction.

While customers have to bear the MDR, until now petrol pumps didn’t have to pay any surcharge. Some reports claimed petrol pumps were paying 1% surcharge on transactions before demonetisation. However, Delhi Petrol Dealers Association (DPDA) today firmly denied the claim.

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“Let me clarify once again, as many news channels are saying that this 1% was levied before the demonetisation move but this was never done at any petrol pump across the country. This 1% surcharge was levied at normal establishments but not at petrol pumps,” DPDA president Anurag Narayan told ANI.

The MDR before December 16 was fixed at 0.75% for transaction up to Rs 2000 and up to 1% for transactions above Rs 2000. On December 16, the government slashed the rates at 0.25% for transactions up to Rs 1000 and up to 0.5% for transactions between Rs 1000-Rs 2000.

To encourage more people for adopting cashless transactions, the government needs to waive-off MDR or any surcharge to be levied from the merchants or consumers. BHIM App could play a saviour in this regard but people are yet to start using it.

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