Banks will still be making losses on debit card transactions even after the Reserve Bank of India rationalised the merchant discount rates (MDR) and fixed an upper limit.
“Let the banks don’t make huge losses. They will still be making losses. There are five major banks which control near about 70-80 per cent of the card acquiring business. We went and verified their books and the cost they are incurring,” RBI Depuy Governor BP Kanungo said.
“It should not be a loss-making proposition for banks. If banks don’t recover losses, they will not be interested in investing in technology. We want transactions to be safe and secure,” Kanungo said. On the other hand, retailers, which are protesting against the new MDR charges, did not respond to the discussion paper issued by the RBI before announcing the new rates.
According to Kanungo, it was found that the present MDR structure does not cover the costs incurred by banks (costs towards POS hardware, network, transaction processing, operational expenses and interchange fees. The cost innvolves investment for attending to customer complaints and adotping safety and security measures.
“The rates cannot be nil. That means banks will not put POS machines. It’s (MDR rates) slightly above the January 1, 2017 rates which were supposed to be temporary measure. But if you go by the pre-demonetisation rates, rates are lower. This is aimed at small value transactions. MDR rates on debit cards are the maximum rates,” Kanungo said.
He said in big super markets MDR rates are much lower and almost close to nil.
“Based on regular interactions with the industry on the issue, we learnt that acceptance of card payments was happening mainly in large shops. For digitisation push in commerce, two things need to be done so far as MDR is concerned — smal merchants needed to be encouraged to accept card payments and banks who provide POS machines must not make loss,” Kanungo said.
On December 6, the RBI fixed the MDR charges for small merchants with an annual turnover of up to Rs 20 lakh at 0.40 per cent with a cap of Rs 200 per transaction by debit cards through Point of Sale (PoS) machines or online transactions. For accepting payments via QR (quick response) code based transactions, the charge will be 0.30 per cent subject to a cap of Rs 200 per transaction. In case the annual turnover of a merchant is over Rs 20 lakh, the MDR charges would be 0.90 per cent with a cap of Rs 1,000 per transaction. If transaction is through QR code, the charges will be 0.80 per cent with a similar cap subject to a cap of Rs 1000 per transaction.
However, retail companies, which earlier did not respond to the RBI paper, have threatened to pass on the MDR charges to the customers. “In a retail business, especially a supermarket or hypermarket where the margins are just 2-3 per cent, such an increase in MDR will have a huge impact on costs, making it imperative for retailers to pass it on to the consumer. In the modern day digital economy, there is no validation for the charges that are being levied for debit card transactions to this extent, especially when we consider that UPI transactions are free and IMPS, NEFT and RTGS transactions cost next to nothing,” RAI CEO Kumar Rajagopalan said.