The Reserve Bank of India has decided to amend the Merchant Discount Rate (MDR) on debit card transactions on the basis of merchant turnover rather than the present slab-rate based on transaction value.
The Reserve Bank of India has decided to amend the Merchant Discount Rate (MDR) on debit card transactions on the basis of merchant turnover rather than the present slab-rate based on transaction value. More so, to encourage asset-light digital infrastructure such as QR-code, MDR on transactions (ex-government) made via digital POS terminals have been aligned at 0.1% lower than ones done on physical POS terminals.
Applicable rates: MDR on small merchants (turnover of less than Rs 2mn as per GST) will be 0.4% and 0.3% for physical and digital POS, respectively. In addition, special category merchants (hospitals, army canteens, education institutions, utilities incl. private sectors) will be treated as small merchants irrespective of turnover.
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For all other category merchants, MDR will be 0.95% and 0.85%. However, MDR on government transactions will be flat – Rs 5 up to Rs1k, Rs10 up to Rs1-2k and 0.5% above Rs2k with a cap of Rs 250. The RBI highlighted that MDR on debit cards for petrol / fuel shall be decided subsequently after the industry consultation process with the Oil Ministry.
MDR for debit card transactions for different merchant categories
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MDR was revised for Jan-March 2017 due to demonetization. “If we take out this special exemption, MDR currently is 0.75% for transaction up to Rs 2k and 1% for transaction above Rs 2k. In our view, this move will impact fee-based income of banks. Card charges (including credit card charges and annual charges on debit cards – unchanged) constitute 15-17% of fee income for large size retail-focused private banks. Fee income will get impacted in the short term but with pick up in volumes, the long-term impact is likely to be neutral,” said Parag Jariwala, CFA, VP – Institutional Research, Banking and Financial Services, Religare Capital Markets Ltd.