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

To promote cashless transactions following the scrapping of high-denomination currency notes, the government had waived the MDR on fuel purchases for consumers.

Written by Khushboo Narayan | Published:January 11, 2017 12:36 am
demonetisation, MDR, Merchant Discount Rate, what is mdr, petrol pump, card payment, card payment tax, no card payment, debit card, credit cardm indian express news, india news, indian express explained Petrol pumps across the country protested, deciding not to accept plastic money from customers for fuel purchases.

How does the Merchant Discount Rate work?

Merchant Discount Rate or 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 1% of the transaction, goes to the company that has installed the Point of Sale (PoS) machine, the network provider such as MasterCard, Visa or RuPay, and the card-issuing bank.

What is the controversy over MDR?

To promote cashless transactions following the scrapping of high-denomination currency notes, the government had waived the MDR on fuel purchases for consumers. But after the expiry of the 50-day window, banks decided to levy MDR on fuel pump owners, making them bear 1% on all credit card transactions, and between 0.25% and 1%on all debit card transactions from January 9. Petrol pumps across the country protested, deciding not to accept plastic money from customers for fuel purchases. According to the All India Petroleum Dealers’ Association, the profit margins of fuel retailers are fixed on a per-kilolitre basis, and with the huge increase in the number of card transactions post-demonetisation, their margins have been impacted — and they can no longer bear the additional charges levied by banks in the form of MDR. The petrol pumps, however, deferred their agitation late on January 8 after the transaction charges were deferred until January 13.

But why do banks levy MDR?

According to Avinash Luthria, vice-president, Financial Processing and Licensing at Worldline South Asia and Middle East, MDR is the main source of funding for card transactions for the issuing banks, network providers and the company or bank that has installed the PoS machines. “The main component of the MDR is interchange — a charge that is paid by the company that has installed the PoS machines to the issuing bank. The MDR also funds the network fee and the cost incurred in running the PoS machines. The MDR is unavoidable,” Luthria said. Worldline is a prominent payment processor in India.

And what has the RBI said on MDR?

In a bid to push debit card transactions, the RBI on December 16 capped the MDR on transactions of up to Rs 1,000 at 0.25% and for those between Rs 1,000 and Rs 2,000 at 0.5%. The cap, RBI said, would be in place until March 31, 2017. However, last week, India’s largest lender, the State Bank of India, 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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  1. K
    Jan 11, 2017 at 2:24 am
    Our people must realize that nothing is free in this world. Even Reliance JIO will be charged after 31/3 when the promotion ends. The electronic system costs money, and someone has to bear it.lt;br/gt;lt;br/gt;In USA where I live, the petrol prices are not controlled. If there are two pumps are nearby, the prices do differ. In rich/poor area, they are more/less really. No charges are levied on customers for cards. lt;br/gt;lt;br/gt;If customers are not charged in India, they have to be borne by vendor or petrol companies. They consider as part of their cost and adjust prices accordingly. lt;br/gt;lt;br/gt;It is high time, India decontrols pump prices for petrol/diesel/CNG. Let free market rule the prices. The government will save huge in cost of accounting, administration and managing and regulating pump prices. The govt. Employees are not cheap, they cost ₹30K to 60K per month. This will resolve all problems.
    1. S
      Satendra kumar
      Jan 11, 2017 at 2:23 am
      The central government and the petroleum distribution network also the consumers who see big changes after post demonetisation of the currency making digitising India and a fair governance to all.
      1. V
        Jan 11, 2017 at 4:35 am
        Indira - High school dropout, Rajeev - Doon school and then Rollsroy mechanic and Devegowda - Diploma in Engineering.
        1. A
          Jan 11, 2017 at 5:07 am
          And what is the actual qualifications of Modi may I ask?
          1. D
            Jan 11, 2017 at 5:04 am
            Finally its going to hit the customers pockets
            1. B
              Jan 11, 2017 at 12:23 am
              this fake is shameess,what he has done so far has taken the country backward by 10 years,he would realise only when he need to stand in quee to get fuel and your money,Moronji you better go and start a tea stall ,highly illiterate PM fake since independence
              1. M
                Mahender Goriganti
                Jan 11, 2017 at 2:12 am
                So was there f=before demonetization and is getting restored. Now the cash is available freely, So what the fuss is all about whether they pay with card or cash?? Why this convoluted lengthy news report is all about ??
                1. N
                  Niladrinath Mohanty
                  Jan 11, 2017 at 2:45 am
                  What was the academic qualification of Indira hi, Rajiv hi and HD Devagouda?
                  1. S
                    shiravanthe sridhar
                    Jan 11, 2017 at 5:10 am
                    ALL of them are as literate and as educated as birendraa,it is very obvious the way he defends them indirectly.
                    1. S
                      SHAHBAS ASLAM
                      Jan 11, 2017 at 12:12 pm
                      Bjp only got 31% of total vote in lok sabha election which means79% of indians were against him...lt;br/gt;Oh god how this fool got elected
                      1. S
                        SHAHBAS ASLAM
                        Jan 11, 2017 at 12:09 pm
                        Really now modi is taking all our in the name of black money..my god !sometime we might have to pay beauty tax to him...
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