A day after the Reserve Bank of India (RBI) “rationalised” the merchant discount rates (MDR) for debit card transactions, retailers have come out against the new charges, saying they are “unrealistic” and increase the cost to the merchants.
“While the RBI has mentioned in its circular that the rates have been ‘rationalised’ to increase the acceptance of debit cards by a wider set of merchants, the increase in the rates and the high cap set defeats the purpose as this increases cost to merchants by almost double,” Retailers Association of India (RAI) has said.
“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.
“And since a debit card transaction is nothing but direct debit from the bank account of the consumer, there is no credit risk for the issuing bank. Therefore, there is no justification for this type of huge increase in MDR. In addition, the RBI has set the maximum limit for MDR at Rs 1000, which is unrealistic as it means that the transaction size is nearly Rs 1.1 lakh,” Rajagopalan said.
Considering that the MDR in countries like China is still at only 0.2 per cent, the move favours banks and card companies such as visa and master and is detrimental to the interest of digital economy, merchants as well as consumers, who often end up bearing the burden of such increases, it said. If the RBI intends to promote the usage of debit cards with merchants as well as consumers, the MDR should not exceed Rs 40 per transaction, the association said.
On Wednesday, 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 PoS machines or online transactions.