MDR charges for debit card payments to govt waived off

Andrew Cummings
February 17, 2017

The agency banks who receive payments made to government of India will submit claims of applicable MDR charges to RBI periodically.

In March 2016, a concept paper was published on RBI website that spelt out various options for rationalisation of MDR structure along with strategies to enhance card acceptance infrastructure in the country. "Banks are free to set the MDR below the regulatory caps indicated for each category", it said.

Read | What is "MDR" levied on plastic money transaction that has triggered threat by petrol pumps to stop accepting cards? In scenarios where the merchant is willing to pay upfront for the card acceptance infrastructure, the MDR has to be on the lower side. "We have not yet heard from the central bank on that", he said. A senior banker at a large public sector bank said that at present the number of debit card transactions for payment of government dues is minuscule as very few have point-of-sale (PoS) terminals. The RBI move is aimed at incentivising both banks and customers to go digital in payments.

According to the draft norms on MDR, the merchants have been categorised in four categories, small merchants with turnover outside the ambit of GST (less than ₹20 lakh per annum), government transactions (railways, VISA fees etc), special category of merchants (utilities, hospitals, Army canteen etc), and all other category of merchants with turnover within the ambit of GST.

In a bid to push debit card transactions, the RBI on December 16 had capped the MDR on transactions of up to R1,000 at 0.25% and for those between R1,000 and R2,000 at 0.5%. As on December 4, 2016, there were 751.7 million debit cards in India.

In a push to promote digital transactions, the government on Thursday chose to refund banks the Merchant Discount Rate (MDR) of debit cards transactions effective from January 1, 2017.

Under the new rule MDR charges on debit cards payments of up to Rs 1 lakh will be absorbed by the government. The claims for the fourth quarter can be made up to April 30, 2017.

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