Debit Card Transaction Fees For Small Businesses Capped At Rs. 200; MDR Lowered!

The issue of Merchant Discount Rate, which is a charge which a merchant pays to the bank for using their debit cards for accepting payments from a customer, has been bothering the industry since long.

MDR is normally passed on to the customer by the merchant, and a major change was required for benefitting both the consumer and the merchant.

Even though MDR was removed after demonetization, in order to encourage consumer to pay via debit cards, the fees made a grand comeback this year, and since then, the business community have been fighting with the Govt. over this issue.

There were even strikes and protests from the retailers of petrol and diesel over this issue.

RBI has finally taken some solid steps to resolve this issue, as they have made Rs 200 as the maximum MDR which a small business needs to pay, for using any debit card for accepting payment.

Thus, the MDR has been fixed for small businesses and merchants, and this will boost the cashless drive to a larger extent.

But, is this enough?

RBI: MDR Now Capped For Small Businesses; Max Rs 200

Small businesses here means those organizations which have turnover of less of Rs 20 lakh in a year. For such businesses, MDR on debit card transactions has been capped at 0.40% of the transaction value.

And, within this cap, if the purchase is more than Rs 50,000, then maximum MDR which can be charged is Rs 200.

B.P. Kanungo, Deputy Governor, RBI said,

“We thought a further push to debit card usage is needed and we decided to rationalize MDR which is intended to widen the network of merchant establishments who use debit cards. This new rule will leave money on the table for merchants so that they add more technology.”

This is a big, massive boost for cashless drive, as small businesses usually process transactions which are less than Rs 50,000, and even if the transaction value is increased, max Rs 200 would be paid as MDR.

The Finer Print

At the same time, MDR for large businesses, which are having turnover of more than Rs 20 lakh per year, the MDR has been capped at Rs 1000.

Besides, RBI has also announced new MDR for other cashless transactions.

Small Business: (annual revenues less than Rs 20 lakh)

• For physical PoS, MDR has been capped at 0.40% of the transaction value (Rs 200 cap)
• For QR Code based transactions, MDR has been capped at 0.30%, with cap of Rs 200

Large Businesses (annual revenues more than Rs 20 lakh)

• For physical PoS, MDR has been set at 0.90%, with maximum MDR of Rs 1000
• For QR Based transactions, MDR has been capped at 0.80%, with max Rs 1000 as fees

This new MDR guidelines is all set to unleash a new era of cashless drive in India. As per latest data, the number of transactions done via PoS (Point of Sales) using debit/credit cards have increased by 100% since 2012, and the value of transactions at these PoS have increased by 65% in the same period.

This year, 545 crore card transactions were completed using debit/credit cards, whose value stood at Rs 742 crores.