There has been a growing demand from business community and consumers to bring down the additional expenses related to cashless transactions. Right now, there is an additional surcharge, called MDR or Merchant Discount Rate of 0.75% if the debit card transaction is less than Rs 2000 and 1% charge if the transaction value is more.
Now, Govt. wants to rationalise this MDR, so that debit card transactions can come down, and consumers are encouraged to opt for more card payments.
In a statement, RBI said, “MDR for debit cards for petrol/fuel shall be decided subsequently after the industry consultation process with oil ministry is completed..”
Last year, RBI had proposed to rationalize MDR charges in order to bring down additional charges for debit card usage. This rationalisation has been finalised now and sent to the Govt. for approval.
How Will MDR Be Rationalized?
As of now, a flat MDR is charged, irrespective of the business purpose or the volume of business which any merchant does.
Govt. will now categorize the debit card transactions and charge as per the very purpose of the transaction and the considering the volume of business which any merchant does.
As per the proposals put forward by the Govt., there shall be 4 categories created:
a) Small merchants having annual turnover of less than Rs 20 lakh/yr: MDR not exceeding 0.4% for debit card and 0.3% for online payments
b) Special Category transactions: MDR not exceeding 0.4% for debit card and 0.3% for online payments
c) All other merchants having turnover of more than Rs 20 lakh per year: MDR not exceeding 0.95% for debit card and 0.85% for online payments
d) Govt. transactions: Flat Rs 5 for under Rs 1000; Rs 10 for Rs 1000-Rs 2000 and 0.5% for all other transactions
This special category of transactions will include the following services: utilities, hospitals, educational institutions excluding coaching classes, insurance, mutual funds, army canteens, state transport and state waterways, agriculture and allied activities.
RBI has said once this proposal receives Govt. approval, then respective payment processing companies will be required to revise their interchange and network fees based on this rationalization of MDR charges. Interestingly, the monthly rentals of PoS machines charges by the banks would be also categorized as per the rationalizing.
This proposal by RBI to bring down MDR charges comes at an interesting time, when heavy users of cashless payments such as petrol pump owners are fighting hard to bring down these additional charges. Last month, petrol pump owners staged a massive strike for the same, after the MDR charges made a comeback after it was removed post-demonetization.
Once the rationalization of MDR charges is approved, it can significantly bring down the costs associated with cashless transactions. We will keep you updated as more details come in..