In a decision taken by the Finance Ministry and approved by the Cabinet, Govt. has removed Merchant Discount Rate or MDR for all forms of debit card and UPI besides all forms of AePS or Aadhaar Enabled Payment Systems.
The Reserve Bank in 2012 had capped the MDR for debit card transaction at 0.75 per cent for transaction values up to Rs 2,000 and at 1 per cent for transaction values above Rs 2,000. Citing this, many people make cash payments in spite of having debit cards.
Well, the government has given the green signal for a proposal, under which you will not be charged for BHIM, UPI, and debit card transactions up to ₹2000. The MDR charges will be borne by the government for two years with effect from January 1, 2018 by reimbursing the same to the banks. The move thus comes as a relief for merchants as the government will now, for a period of two years from January 2018, bear this expense The amount to be incurred for this has been estimated at Rs 4.37 lakh crore for the current fiscal.
The government has set up a committee of secretaries from both the Department of Financial Services and Ministry of Electronics & IT and the CEO, National Payment Corporation of India (NPCI) to look into the industry cost structure of such transactions, which will form the basis to determine the levels of reimbursement. "Most merchants will be discouraged to use POS machines, especially small merchants who do not get input tax credit in GST".
Earlier this week, in defense of the regulator's decision, RBI Deputy Governor, B P Kanungo said that all of the large acquiring banks are incurring losses on account of MDR as they are unable to recover the cost for setting up the infrastructure. "Though the total amount is less, the volume is high and around 65%", Prasad said.
Law and IT Minister Ravishankar Prasad said, "The cabinet cleared the move in an effort to boost digital payments".
RBI data shows that debit and credit card payments at PoS terminals have increased from Rs 35,240 crore in November 2016, compared to Rs 47,980 crore in November 2017. Due to this charge, shopkeepers hesitate to pay by card. On the UPI, merchants are charged a merchant discount rate (MDR) of 0.25 percent for payments below Rs 1,000 and 0.65 percent for all other charges.