Published: Sat, December 16, 2017
Finance | By Loren Pratt

Cabinet approves subsidizing MDR charges on digital transactions

Cabinet approves subsidizing MDR charges on digital transactions

The Union Cabinet on Friday made a decision to waive Merchant Discount Rate (MDR) applicable on all debit card, BHIM, UPI, AePS transactions.

This charge is deducted by the bank while attributing the deal continues to the dealer's record and is called trader markdown rate (MDR).

Now, in order to aid more cashless transactions, Govt. of India has announced that MDR will be removed for all transactions upto Rs 2000, made via debit cards and UPI. While the charges for check cards have been deferred, payments with credit card will keep on attracting MDR.

"It is estimated that the MDR to be reimbursed to the banks for transactions less than Rs 2,000 in value would be Rs 1,050 crore in 2018-19 and Rs 1,462 crore in 2019-20", a government release said. The move thus comes as a relief for merchants as the government will now, for a period of two years from January 2018, bear this expense The amount to be incurred for this has been estimated at Rs 4.37 lakh crore for the current fiscal.

As a result of this approval, for all transactions less than Rs 2000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR.

Since these small transactions account for a sizeable percentage of the digital transactions, it is expected to help in the transition towards a less-cash economy. Given that the average debit transaction in India is beneath Rs 1,500, bearing debit cards will turn out to be practically as shabby as tolerating money for little dealers.

According to Manju Agarwal, deputy managing director, State Bank of India, for smaller shops credit card charges were not a concern as the bulk of their transactions are through debit cards.

Similarly, for accepting QR (quick response) code based acceptance infrastructure, the MDR will be 10 basis points lower across both merchant categories.

Debit card usage volume has tripled to 2.4 billion transactions in 2016-17 from around 800 million in 2014-15. The amount earned by bank as MDR is given to payment service providers such as Visa, MasterCard or NPCI.

Each time a card is swiped, a vendor pays an tax to the bank. On the UPI, merchants are charged a merchant discount rate (MDR) of 0.25 percent for payments below Rs 1,000 and 0.65 percent for all other charges.

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