MDR is the fee merchants pay to banks that provide infrastructure to accept digital payments.
The bill to the exchequer on account of the government’s decision to reimburse merchant discount rate (MDR) for small-value transactions stands at Rs 2,512 crore, the government told Parliament in the just concluded session.
In a written reply to a question in the Rajya Sabha, Shiv Pratap Shukla, minister of state (MoS) for finance, said, “It is estimated that the MDR to be reimbursed to the banks in respect of transactions less than Rs 2,000 in value would be Rs 1,050 crore in FY 2018-19 and Rs 1,462 crore in FY 2019-20.”
MDR is the fee a merchant pays to the bank that provides the infrastructure to accept digital payments. According to a recent report by brokerage Kotak Institutional Equities (KIE), the total MDR fee for all merchant transactions in FY17 was Rs 3,000 crore.
In a notification dated December 28, 2017, the government had said it would reimburse MDR charges for all digital transactions of a value less than or equal to Rs 2,000 using debit cards, Unified Payments Interface and Aadhaar Pay, so that such digital payment transactions are promoted. The subsidisation was made applicable from January 1, 2018 to December 31, 2019.
Earlier, on December 6, the Reserve Bank of India had released final guidelines for rationalisation of MDR for debit card transactions, putting in place a framework of rates differentiated in terms of merchant turnover.
As per the guidelines, small merchants, or those with an annual turnover of up to Rs 20 lakh, will be charged a maximum of 0.4% for each transaction made through a physical point of sale 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.