RBI reduces merchant discount rates for debit cards

RBI reduces merchant discount rates for debit cards

According to RBI Deputy Governor B P Kanungo, the move is aimed at increasing the stagnant debit card transactions but will also make sure that the acquirers get sufficiently compensated for investing in the infrastructure.

These categories involved merchants on the basis of turnover, adoption of a differentiated MDR for QR-code based transactions and specifying a ceiling on the maximum permissible MDR for both "card present" and "card not present" transactions.

"In 2016-17, the percentage of usage of debit cards at point of sales (PoS terminals) was at 21.9% and now it is nearly at that stage".

For merchants with annual turnover of more than Rs 20 lakh, a cap of 0.9% is prescribed for physical PoS and online card transaction while 0.8% cap is mandated for QR code based transaction. For larger retailers (turnover above Rs 20 lakh), the charges are more than double at 0.90% of the transaction value.

The RBI has fixed a lower merchant discount rate (MDR) - which refers to the fees paid to a bank on card payments - for businesses with a turnover of below Rs 20 lakh.

For small merchants, merchant discount rate for debit transactions should not exceed 0.3% for QR-based card acceptance infrastructure.

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For merchants with a turnover above Rs 20 lakh (during the previous financial year), MDR will not exceed 0.9 % per debit card transaction, and MDR paid to the bank can not exceed Rs 1,000.

RBI guided saying, "It is reiterated that the banks and authorised card payment networks shall strictly adhere to the above directions". MDR is the fee charged to a merchant by a bank for providing the infrastructure to facilitate the use of debit and credit card payment services.

Performance debit card transaction at point of sales (POS) terminal has seen major boost after the announcement of the demonetisation drive. It was then that RBI chose to increase the PoS infrastructure to encourage usage of cards at merchant establishments. However, that directive was applicable only until March 31, 2017. For transactions above Rs 1000 but less than Rs 2000, MDR was kept at 0.5 per cent of the transaction value.

Start of fiscal year FY18 has so far been modest for POS transactions. Debit card usage volume tripled to 2.4 billion transactions in 2016-17 from around 800 million in 2014-15.

Earlier in the month of February, the RBI had circulated a draft of MDR seeking public comments and views over it. We would need to bear with two short term challenges one of IT implementation on the cap of MDR and second the ability of payment players including banks to quickly validate the merchant turnover while boarding merchants.

There were also cases like differential MDR for government transactions and for certain special categories in view of the non-discretionary nature of those expenses.

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