Cost Con­trol

Sev­eral gov­ern­ment steps over the years have made dig­i­tal pay­ments af­ford­able

Business Today - - CONTENTS - By DI­PAK MONDAL

At the peak of de­mon­eti­sa­tion, banks, prod­ded by the gov­ern­ment, waived off mer­chant dis­count rate, or MDR, charges on debit cards to pro­mote dig­i­tal pay­ments amid un­prece­dented short­age of cash. MDR is a fee that the mer­chant has to pay the bank whose cus­tomers use credit/ debit cards for pur­chases. It should ideally be paid by mer­chants but many small re­tail­ers of­ten charge it from cus­tomers. This dis­cour­ages peo­ple from us­ing cards. The MDR waiver, from Novem­ber 11, 2016, to De­cem­ber 31, 2016, boosted card trans­ac­tions.

How­ever, banks brought back MDR in Jan­uary, even though the cash crunch was not over then, a move that, along with the in­crease in fee for cash trans­ac­tions, did not go down well with peo­ple. The Re­serve Bank of In­dia, or RBI, came to the res­cue – it re­duced the cap on debit card MDR from 75 ba­sis points, or bps, to 25 bps and 50 bps for sub`1,000 and sub-`2,000 trans­ac­tions, re­spec­tively. For trans­ac­tions above `2,000, it con­tin­ued to re­main 100 bps.

In­dia, a pre­dom­i­nantly cash econ­omy with just 11 non-cash pay­ment trans­ac­tions (by non­banks) per capita per an­num, needs to bring down the cost of dig­i­tal pay­ments to make them pop­u­lar. In a free mar­ket, though it is mar­ket dy­nam­ics, com­pe­ti­tion and tech­no­log­i­cal in­no­va­tions that pull down prices of prod­ucts and ser-

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