Your debit card transactions just became cheaper, here's how

Mae Love
December 7, 2017

Mumbai: The Reserve Bank of India (RBI) on Wednesday revised merchant discount rate (MDR) charges, or the commission paid by a merchant to a bank for facilitating digital transactions, to encourage small businesses to start accepting card payments.

MDR is the fee that a merchant have to pay to a bank for every transaction which is split between the bank which has issued the card, the lender whose point-of-sale terminal is being used and payment gateways like MasterCard or Visa.

In case of QR-code based card acceptance, these small merchants will charge a customer with MDR not exceeding 0.30% which is cap of Rs 200 per transaction.

He said a differentiated MDR for asset-light infrastructure is put in place which will be slightly less.

According to Wednesday's decision, small merchants (with turnover of less than Rs 20 lakh last financial year) can not be charged more than 0.4 per cent per debit card transaction and MDR paid to the bank can not exceed Rs 200.

There were also cases like differential MDR for government transactions and for certain special categories in view of the non-discretionary nature of those expenses. These charges are effective from 1 January 2018, RBI said in a circular.

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As per existing guidelines for debit cards, MDR is capped at 0.25 per cent for transactions up to Rs 1,000 and at 0.5 per cent for transactions above Rs 1,000 and up to Rs 2,000. MDR for both debit & credit cards were same till June 2012, when the RBI first reduced MDR for debit cards to boost their usage for sales. As per the draft, based mainly on consultations with various stakeholders, it was chose to restructure MDR on the basis of merchant turnover rather than the present slab-rate based on transaction value.

The central bank had made an exception to the rule, making debit card transactions cheaper last December following demonetisation.

RBI guided saying, "It is reiterated that the banks and authorised card payment networks shall strictly adhere to the above directions".

The merchant discount rate is the fee charged to a merchant by a bank for providing debit and credit card payment services. This definitely should be good for SMEs to adopt digital payments.

MDR charge, which is levied on debit card transaction, would be even less at 0.3 percent if transaction is through digital PoS (QR Code), it had said.

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