Digital Push: RBI rationalises debit card charge structure

To reimburse debit card charges to banks; decide to restructure MDR on the basis of merchant turnover rather than slab-rate based on transaction value.

By: ENS Economic Bureau | Mumbai | Published: February 17, 2017 2:33 am
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In an ambitious plan to boost digital transactions, the Reserve Bank of India (RBI) has rationalised the present slab-rate merchant discount rate (MDR)-based transaction value to merchant turnover-based structure.

Further, the RBI has proposed a differential MDR structure for asset light card acceptance infrastructure like QR Code, special merchant categories for government transactions and other transactions involving non-discretionary expenses. “Banks are free to set the MDR below the regulatory caps indicated for each category,” it said.

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The RBI has decided to restructure MDR on the basis of merchant turnover rather than the present slab-rate based on transaction value. “There is also a case for having a differential MDR for government transactions and for certain special categories in view of the non-discretionary nature of those expenses, etc,” the RBI said.

Read | What is ‘MDR’ levied on plastic money transaction that has triggered threat by petrol pumps to stop accepting cards?

Similarly, taking into account the need for encouraging asset-light digital infrastructure such as QR-code, there is a need to differentiate MDR between acquiring infrastructure involving physical terminals, including mPOS and digital acceptance infrastructure models such as QR Code, it said. In scenarios where the merchant is willing to pay upfront for the card acceptance infrastructure, the MDR has to be on the lower side.

The RBI said the present GST limits have been considered for the four classification for transparency and uniformity. As and when the GST limits undergo a change, the same may be incorporated appropriately for merchant classification, it said.

Card networks should suitably revise the applicable interchange and network fees, preferably on percentage basis rather than any flat fee basis. Banks shall also appropriately rationalise the monthly rentals, it said.

Meanwhile, in another bid to push debit card transactions, the RBI will start reimbursing MDR charges to banks for payments to the government through debit cards by citizens from January 1. The RBI move is aimed at incentivising both banks and customers to go digital in payments.

MDR is a charge that merchants pay every time a debit card or credit card is swiped at their end for a transaction by a customer. This charge, typically one per cent of the transaction, goes to the company that has installed the point of sale (PoS) machine, such as MasterCard, Visa or RuPay, and the card-issuing bank. As on December 4, 2016, there were 751.7 million debit cards in India.

“The Reserve Bank will reimburse banks MDR on debit cards used for payment of tax and non-tax dues to the government of India with effect from January 1, 2017,” the central bank said in a notification on Thursday. In December 2016, the government had decided to absorb the MDR charges in respect of debit card transactions for making payments to it. The RBI on December 16 capped the MDR on transactions of up to Rs 1,000 at 0.25 per cent and for those between Rs 1,000 and Rs 2,000 at 0.5 per cent. The cap, RBI said, would be in place until March 31, 2017. However, India’s largest lender, State Bank of India, went a step ahead and waived the MDR for all small merchants with a turnover of Rs 20 lakh or less for a year until December 31, 2017.

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