In a bid to encourage debit card usage and increase acceptance of debit card payments across a wider network of merchants, the Reserve Bank of India today decided to rationalise the framework for Merchant Discount Rate (MDR) applicable on debit card transactions, based on the category of merchants. Merchant discount rate is the fee charged to a merchant by a bank for providing debit and credit card payment services.
- Debit card usage has been stagnating, RBI said.
- Charges for accepting debit cards to be based on the merchant's sales
- RBI reduced the MDR charged by banks to small merchants
"In 2016-17, the percentage of usage of debit cards at point of sales (PoS terminals) was at 21.9 per cent and now it is almost at that stage. So, we thought that it is about time that a further push is given to that and one of the ways we thought we can help achieve the objective is rationalisation of the MDR," deputy governor B P Kanungo said, according to Press Trust of India.
According to Wednesday's decision, small merchants (with turnover of less than Rs 20 lakh last financial year) cannot be charged more than 0.4 per cent per debit card transaction and MDR paid to the bank cannot exceed Rs 200. For QR code-based card acceptance, merchant charge will not exceed 0.3 per cent of the transaction value with a cap of Rs 200.
For merchants with a turnover above Rs 20 lakh (during the previous financial year), MDR will notexceed 0.9 per cent per debit card transaction and MDR paid to the bank cannot exceed Rs 1,000. For QR code-based card acceptance, merchant charge will not exceed 0.8 per cent of the transaction value with a cap of Rs 1,000.
Following demonetisation, the RBI had in December last year capped the MDR charges at 0.25 per cent for transactions up to Rs 1,000.
The apex bank had introduced MDR in 2012 to incentivise the use of debit card - a product linked to availability of funds with the user - rather than credit cards which were a part of the unsecured credit product portfolio of the issuers. Further, it is observed that debit cards are mostly being used for withdrawal of cash at ATMs, RBI had said.
Given the situation, MDR was a way to encourage the use of debit cards, especially at smaller merchants/service providers and also facilitate acceptance of small value transactions.