Several government steps over the years have made digital payments affordable
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-