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HomeUncategorizedGovt to discuss MDR rate issue with RBI: Official

Govt to discuss MDR rate issue with RBI: Official

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Digital India AVThe government will hold consultations with the Reserve Bank to work out a mechanism to bring down merchant discount rates (MDR) that have gone up to 0.90 per cent recently from 0.25 per cent of transaction value, a finance ministry official said.

According to a senior finance ministry official, the hike in charges would impact Digital India movement and there is a need to look into the issue.

“Most merchants will be discouraged to use POS machines, especially small merchants who do not get input tax credit in GST. This will discourage them from using POS machines,” the official said.

MDR is the rate charged to a merchant by a bank for providing debit and credit card services. There are nearly 27-28 crore transactions per month on Point of Sale (POS) machines with an average size of Rs 1,500.

Last year after demonetisation, the RBI as a special measure had capped the MDR at 0.25 per cent of the transaction value for transactions of up to Rs 1,000 and 0.5 per cent for those above Rs 1,000 and up to Rs 2,000.

The new norms announced by the central bank a week ago put the MDR charges at 0.40 per cent if the transaction involves physical infrastructure such as a swipe machine for small merchants with a turnover of up to Rs 20 lakh during the previous financial year.

The MDR charges are capped at 0.90 per cent for other merchants limited to Rs 1,000 per transaction. The RBI on December 6 revised the MDR for debit card transactions at large format retail stores from 0.5 per cent per transaction to 0.9 per cent — not exceeding Rs 1,000.

Meanwhile, facing flak from various quarters, especially card-acquiring banks, the Reserve Bank clarified that it lowered MDRs after detailed talks with all stakeholders to achieve the twin objectives of promoting less-cash economy and ensure all stakeholders do a profitable business.

The Reserve Bank also clarified that no merchant will at any level charge merchant discount rates (MDRs) to consumers and the new rates are applicable only on debit card transactions and not credit cards.

“We’ve rationalised MDRs after extensive consultations with all stakeholders — issuing and acquiring banks, and merchants. The new rates are aimed at achieving the twin objectives of promoting card payments, especially in small towns, and also to ensure all stakeholders, especially the acquiring banks, do not lose too much,” RBI Deputy Governor B P Kanungo said.

He further said card transactions happened mostly at large stores.

“So, to push digitisation, especially in small towns, we had to ensure small merchants are encouraged to accept card payments, and at the same time, ensure banks which provide this service should not be making losses,” he explained.

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