Credit, debit card payments could now cost more
The Reserve Bank of India revised merchant discount rate (MDR) charges to induce more small merchants to adopt card payment infrastructure. However, its decision to link the MDR with merchant revenues means that for most merchants who already use such infrastructure, the charges are set to increase for the average transaction although maximum rates have been capped.
MDR is the commission paid by the merchant to a bank for every digital transaction allowed by the bank.
For small merchants, defined as those with a turnover of less than ₹20 lakh, MDR would be 0.4% of transaction value or ₹200 which ever is lower. For other merchants, the MDR is 0.9% of transaction value or ₹1,000 whichever is lower.Under current rules,after RBI changed rates post the 8 November 2016 invalidation of high value currency notes, MDR is charged based on three slabs. For transactions below ₹1,000, it is 0.25%; for those between ₹1,000-2,000, its is 0.5%. Merchants have to pay a commission of 1% for transactions more than ₹2000.
Thus, for a transaction worth say ₹1,000, a merchant has to pay a commission of ₹5. Under the new rules, a small merchant would pay ₹4 and others ₹5.
These charges are effective from January 1, 2018, RBI said in the circular.
Promoting a cashless economy is one of the stated ambitions of the government and one of the reasons offered for the note ban. Debit card usage volume almost tripled from around 800 million transactions in 2014-15 to 2.4 billion in 2016-17. Simultaneously,
MUMBAI:
the value of these transactions grew from ₹1.2 lakh crore to ₹3.3 lakh crore. That means an average of ₹1,375 per transaction, at which the proposed MDR is higher than the current one.
“This regulatory framework will be good news for banks, not so much for merchants considering that the average MDR would be higher than the current one. RBI should have regularised the prevalent MDR structure which was brought down during the demonetisation period,” said AP Hota, former chairman, National Payment Corporation of India.
RBI has also introduced different rates for digital transactions processed through QR codes. Rates for these are 10 basis points lower for both merchant categories.
The proposed structure is simpler than what RBI had suggested in a draft paper in February. The draft norms proposed to create four different classes of merchants—smaller merchants that have an annual turnover of up to ₹20 lakh; government transactions; special category merchants such as those providing services related to hospitals, utilities and educational institutions; and all other merchants who have an annual turnover of over ₹20 lakh.