The Reserve Bank of India has decided to slash MDR (merchant discount rate) charges on payments made through debit cards and do away with levies on small transactions through mobile phones and Internet from January 1 to March 31 in order to encourage digital transactions and tackle the currency shortage in the banking system.
The MDR for debit card payments, including for payments made to the government, will be capped at 0.25 per cent for transactions up to Rs 1,000 and 0.5 per cent between Rs 1,000-2,000, the RBI said in a notification. The existing MDR cap is 0.75 per cent for transactions up to Rs 2,000 and 1 per cent for over Rs 2,000. However, there is no RBI cap on MDR on credit card payments.
The Reserve Bank of India said reduced charges will “come into effect from January 1, 2017 and will be applicable till March 31, 2017.
In the intervening period, Reserve Bank will review the framework for charges for electronic payment transactions, in consultation with the stakeholders.
Similarly, it has asked banks and prepaid payment instrument issuers not to levy any charges for transactions up to Rs 1,000 from January 1 to March 31.
This would cover transactions through Immediate Payment Service (IMPS), USSD-based *99# and Unified Payment Interface (UPI) systems.
As of October 2016, there were 73.92 crore debit card users and 2.73 crore credit card holders in the country. The value of debit card transactions in 2015-16 was Rs 26,96,000 crore.
The relaxations are in tandem with initiatives taken by the government to “incentivise greater adoption of digital payments by large sections of the society.”
After monetisation of old Rs 500 and Rs 1,000 banknotes, several banks including SBI, ICICI Bank, Axis Bank and Yes Bank have waived MDR charges on debit card transactions till December 31.
Merchant discount rate is the rate charged to a merchant by a bank for providing debit and credit card services.
The rate is determined based on factors such as volume, average ticket price, risk and industry.
The government has announced a slew of measures, both for customers and merchants, to encourage digital payments in the country ever since it sucked out a large portion of cash circulating in the economy. Steps have been taken to make petrol, railway tickets and insurance policies of PSU companies cheaper if bought through debit/credit cards or other digital modes.
Besides, a lucky draw cashback reward scheme for consumers and merchants will start from the Christmas till mid of April for Rs 50-3,000 transactions through the digital mode.