What is Merchant Discount Rate?
1-It is a charge to a merchant by a bank for accepting payment from their customers in credit and debit cards every time a card is used for payments (like swiping) in their stores.
2-The merchant discount rate is expressed in percentage of the transaction amount.
MDR Policy by the RBI
1-For the time being, the objective of the RBI is to encourage maximum cashless transaction.
2-Aiming this objective, the RBI has brought a policy of setting upper limit for MDR by banks.
3-Here, the Reserve Bank had rationalized the Merchant Discount Rate (MDR) for debit cards with effect from September 2012.
4-Since then, the MDR for debit card transaction has been capped at 0.75% for transaction values upto Rs.2000 and at 1% for transaction values above Rs.2000.
What is the controversy over MDR?
To promote cashless transactions following the scrapping of high-denomination currency notes, the government had waived the MDR on fuel purchases for consumers. But after the expiry of the 50-day window, banks decided to levy MDR on fuel pump owners, making them bear 1% on all credit card transactions, and between 0.25% and 1%on all debit card transactions from January 9. Petrol pumps across the country protested, deciding not to accept plastic money from customers for fuel purchases. Later, after the talks the issue being pending, but petrol pumps across the country agree not to take MDR from customers.
Why do banks levy MDR?
MDR is the main source of funding for card transactions for the issuing banks, network providers and the company or bank that has installed the PoS machines. The main component of the MDR is interchange—a charge that is paid by the company that has installed the PoS machines to the issuing bank. The MDR also funds the network fee and the cost incurred in running the PoS machines..
RBI on MDR
|
RBI on MDR |
|
|
Transactions |
charges |
|
up to Rs 1,000 |
0.25% |
|
between Rs 1,000 and Rs 2,000 |
0.5% |
1-In a bid to push debit card transactions, the RBI on December 16 capped the MDR on transactions of up to Rs 1,000 at 0.25% and for those between Rs 1,000 and Rs 2,000 at 0.5%.
2-The cap, RBI said, would be in place until March 31, 2017.
3- last week, India’s largest lender, the State Bank of India, waived the MDR for all small merchants with a turnover of Rs 20 lakh or less for a year until December 31, 2017.