To promote digital transactions, the Union Cabinet on Friday approved a proposal mandating that government will bear the merchant discount rate (MDR) charges on transactions up to Rs 2,000 on all debit card, BHIM UPI and Aadhaar-enabled payment systems. This means apart from merchants, consumers will not have to bear any charges on such transactions. The MDR subsidy will apply on transactions from January 1 for a period of two years. The Centre is estimated to reimburse Rs 1,050 crore to banks in FY19 and Rs 1,462 crore in FY20 towards MDR subsidy.
Merchant Discount Rate
According to investopedia, the rate charged to a merchant by a bank for providing debit and credit card services is called Merchant Discount Rate. It is the charge a merchant pays to a bank for availing card transaction services. The bank offering the service to the merchant is called the acquiring bank. The rate is determined based on factors such as volume, average ticket price, risk and industry. The merchant must set up this service with a bank, and agree to the rate prior to accepting debit and credit cards as payment.
The move follows a recent slowdown in digital transactions, which had surged post-demonetisation. In another decision, the Cabinet approved a Rs 2,600-crore special package for the leather and footwear sector, which has the potential to generate 3.24 lakh jobs in three years and assist in the formalisation of 2 lakh jobs. The scheme would lead to development of infrastructure for the leather sector, address environment concerns, facilitate additional investments, aid employment generation and increase production. Under this scheme, it is proposed to provide the employers’ contribution of 3.67% to Employees’ Provident Fund for all new employees under the salary bracket of Rs 15,000, enrolling in EPFO for first three years of their employment. At present, 8.33% of the employer’s contribution is already being provided by the government under Pradhan Mantri Rozgar Protsahan Yojana. To strengthen healthcare and education facilities, a new central sector scheme, “North East Special Infrastructure Development Scheme”, was approved with 100% funding from the Centre to fill up the gaps in creation of infrastructure in specified sectors till March 2020.