RBI monetary policy: MDR charges linked to merchant revenue

RBI’s move to link merchant discount rate charges to their revenue is aimed at encouraging small businesses to start accepting card payments

RBI’s move to link merchant discount rate charges to their revenue is aimed at encouraging small businesses to start accepting card payments

"With a view to giving further fillip to acceptance of debit card payments for purchase of goods and services across a wider network of merchants, it has been chose to rationalise the framework for Merchant Discount Rate (MDR) applicable on debit card transactions based on the category of merchants", the RBI said in the release.

In a major push for debit card transactions, the Reserve Bank of India today announced that it will put a limit on merchant discount rate (MDR) and create a framework for asset-light acceptance infrastructure.

Maintaining a status quo in its fifth bi-monthly monetary policy of FY18, the RBI on Wednesday rationalised the framework of Merchant Discount Rate (MDR) into three category for debit cards transaction.

The MDR for debit card payments, including for payments made to the government, were capped at 0.25 percent for transactions up to Rs 1,000 and 0.5 percent between Rs 1,000-2,000.

In case of QR-based transactions, charges are set to not exceed 0.80 percent of the total transaction with an upper cap of Rs 1000 per transaction.

The new caps will come into effect from January 1.

"In recent times, debit card transactions at "POS" have shown significant growth". Consequently, MDR for debit cards were first fixed at 0.75% for transactions of amount up to Rs 2000, while for transactions above Rs 2000, MDR was 1%.

Why it might be cheaper to transact through PayTM-like platforms? The decision is based on the criteria of categorisation of merchants on the basis of annual turnover, adoption of a differentiated MDR for QR-code based transactions, as well as specifying a ceiling on the maximum permissible MDR or transaction rate for both "card present" and "card not present" transactions. "RBI should have regularized the prevalent MDR structure", said A.P. Hota, former managing director and CEO, National Payments Corp. of India. However, that directive was applicable only until March 31, 2017. However, we would have preferred to have it based on interchange. "We would need to bear with two short term challenges one of IT implementation on cap of MDR and second the ability of payment players including banks to quickly validate the merchant turnover while boarding merchants". Further, it is observed that debit cards are mostly being used for withdrawal of cash at ATMs, RBI had said.