Oil companies want banks to halve merchant discount rate
MUMBAI : State-owned fuel marketers want banks to reduce card transaction fees for fuel purchases by half, four people aware of the development said.
Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) will make the proposal at a meeting with banks on Monday, the people mentioned above said on the condition of anonymity.
“We are in discussions with banks and a meeting is scheduled for January 8. We don’t plan to pay more than what we are paying already. As per the latest rules, rates are higher. We want banks to halve it,” an official from an oil marketing companies (OMCS), one of the four people cited above said on condition of anonymity.
Every card transaction attracts a fee called the merchant discount rate (MDR). This is paid by the merchant (in this case, the OMC) and shared by the bank which put up the swipe machine, the bank which issued the card and payment networks like Visa and Mastercard.
MDR is not passed on to customers. Since February 2017, it is the OMCS which pay MDR on behalf of their dealers.
Under rules that were in force till December 31, MDR was 0.25% for transactions below ₹1,000; 0.5% for between ₹1,000 and ₹2,000; and 1% for higher amounts.
The Reserve Bank of India (RBI) tweaked these on December 6, 2017 to encourage small businesses to accept card payments.
For those with an annual revenue below ₹20 lakh, MDR would be 0.4% of the transaction value or ₹200, whichever is lower. For the others, MDR is 0.9% of the transaction value or ₹1,000, whichever is lower. These charges are effective from January 1. This means under the new regime, OMCS will be paying more MDR than before.
Emails sent to IOC, BPCL and HPCL on January 4 went unanswered.
Banks, however, may not oblige. “It is the government and regulatory direction that OMCS will have to account for the charges. Bankers have a clear stance that they won’t be sharing any charges. Why should they pay for their own income? We (banks) are ready to hold further talks,” said a person aware of discussions, the second of the four people cited earlier.
Bankers say they will have to bear losses if MDR is reduced because they are burdened with the cost of setting up card acceptance infrastructure.
On December 15, the government decided to bear MDR on digital payments up to ₹2,000.
In 2016-17, debit card usage volume tripled to 2.4 billion transactions, up from around 800 million in 2014-15. The value of these transactions rose to ₹3.3 lakh crore from ₹1.2 lakh crore.
Following demonetisation in November 2016, the government waived MDR at fuel stations till December 31, 2016 to encourage cashless transactions.
However, when banks demanded MDR in January 2017, the All India Petroleum Dealers’ Association and the Consortium of India Petroleum Dealers refused to pay and threatened to discontinue card transactions. For OMCS, the burden of MDR comes on top of a 0.75% discount for purchase of auto fuel using credit and debit cards and e-wallets. The discount came into effect on December 13, 2016.