By Komal Gupta and Elizabeth Roche
The merchant discount rate (MDR) applicable on transactions made through debit cards, UPI and Aadhaar up to Rs2,000 will be borne by the govt for two years with effect from 1 January
New Delhi: In a major push towards making India a less-cash economy, the union cabinet on Friday decided to bear the merchant discount rate (MDR) applicable on digital payments via debit cards, etc., up to Rs2,000.
The MDR applicable on transactions made through debit cards, the unified payments interface (UPI) and Aadhaar-enabled payments system (AEPS) up to and including a value of Rs2,000 will be borne by the government for a period of two years with effect from 1 January, said Ravi Shankar Prasad, information technology and law minister, while announcing the cabinet decision.
MDR is the charge paid by a merchant to a bank for accepting payment from customers via credit or debit cards. It is expressed as a percentage of the transaction amount.
It is estimated that the MDR to be reimbursed to banks in respect of transactions less than Rs2,000 in value will be Rs1,050 crore in FY 2018-19 and Rs1,462 crore in FY 2019-20, a government statement said.
“As a result of this approval, for all transactions less than Rs2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR, thereby leading to greater adoption of digital payment modes for such transactions,” the statement added.
“This is a revolutionary step to encourage digital payments for all retailers. Now, paying through digital modes has been made at par with cash payments…in fact, better. Cashless modes will have an edge over cash because of additional convenience and freedom from fake or counterfeit currency,” said Sunil Kulkarni, joint managing director at Oxigen Services (India) Pvt. Ltd, an e-wallet and payment solutions company.
The statement also said that a committee comprising secretary, department of financial services; secretary, ministry of electronics & IT; and the CEO, National Payment Corporation of India (NPCI) will look into the industry cost structure of such transactions, which will help determine the levels of reimbursement.
Last week, the Reserve Bank of India (RBI) brought in several changes to MDR for debit card transactions which will be effective from 1 January. According to its latest circular on MDR, for merchants with a turnover of up to Rs20 lakh, MDR has been capped at 0.4% if the transaction involves physical infrastructure such as a swipe machine. If the transaction is conducted via a QR code, MDR has been further reduced to 0.3%, subject to a maximum of Rs200 per transaction.
For merchants whose annual turnover exceeds Rs20 lakh, MDR has been capped at 0.9% for swipe machine-based transactions and 0.8% for QR code-based sales, subject to a maximum of Rs1,000 per transaction.
Noting the growing trend in the volume of digital transactions, Prasad said that the value of digital transactions during April-September 2017 was Rs2.18 trillion. This amount is estimated to be Rs4.37 trillion for the current financial year, he added. Prasad hailed the decision as “very crucial” to the government’s aim to grow India’s digital economy to $1 trillion by 2022.