The RBI has fixed a lower merchant discount rate (MDR) - which refers to the fees paid to a bank on card payments - for businesses with a turnover of below Rs 20 lakh. MDR is the fee charged to a merchant by a bank for providing the infrastructure to facilitate the use of debit and credit card payment services.
The new structure will push more digital payments and the banks will also have to ensure that the MDR levied on merchants should not exceed the cap rates and that the merchants on-boarded by banks do not pass on MDR charges to customers.
"Taking into account the twin objectives of promoting debit card acceptance by a wider set of merchants, especially small merchants, and ensuring sustainability of the business for the entities involved, it has been chose to rationalise the MDR for debit cards", RBI said.
For transaction value up to Rs 2000, the RBI had decided in 2012 that charges would not exceed 0.75 percent of the of the total transaction amount for debit card payments. It added that a differentiated MDR for asset-light acceptance infrastructure and a cap on absolute amount of MDR per transaction will also be prescribed.
MDR is the cost paid by a merchant to a bank for accepting payment from their customers via credit or debit cards every time a card is used for payments in their stores.
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Meanwhile, the RBI also made a decision to permit overseas branches and subsidiaries of Indian banks to refinance External Commercial Borrowings of AAA rated corporates as well as Navratna and Maharatna PSUs, by raising fresh ECBs. If the transaction is conducted via a QR code, the MDR has been further reduced to 0.3 per cent.
In the case of merchants with a turnover of above Rs 20 lakh during the previous financial year, the charge of a debit card transaction has been set to not exceed 0.90 percent with an upper cap of Rs 1000 per transaction. Banks were unhappy with these charges because average debit card payments were below Rs 2,000. In terms of volume, the trasactions at POS more than doubled to 415.46 million in December as against 236.47 million in November 2016 month. However, that directive was applicable only until March 31, 2017. For transactions up to Rs 1,000, the MDR was capped at 0.25% and for transactions between Rs 1,000 to Rs 2,000, the MDR was capped at 0.50%.
Start of fiscal year FY18 has so far been modest for POS transactions.
As per RBI data, in September 2017, there were a total of 819 million debit cards in the country. Rates for these are 10 basis points lower for both merchant categories.
The proposed structure is simpler than what RBI had suggested in a draft paper in February. "We hope that the rationalisation of MDR charges will reignite debit card transactions at PoS and this increase in volume will outstrip any possible loss on the part of the banks".
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