New debit card charges unrealistic, raise costs

Lloyd Doyle
December 8, 2017

MDR is the rate charged to a merchant by a bank for providing debit and credit card services.

Debit card transactions at merchants with turnover of up to Rs 20 lakh will attract an MDR of 0.40 per cent with a cap of Rs 200 per transaction, while the same at others will be 0.9 per cent with a cap of Rs 1,000. This will be capped at Rs 200 per transaction.

The fee for merchants with a turnover of up to Rs. 20 lakh in the previous financial year is capped at 0.4% for transactions via the Point-of-Sale terminals or online. This will have an MDR cap of Rs 1000 per transaction. If the transaction is through QR code, the charges will be 0.8 per cent with a similar cap. This will be capped at Rs 1000 per transaction.

As per the latest data issued by RBI, the overall volume of card payments at the PoS terminals have registered a growth of over 100 per cent in comparison to the base year 2012.

"While RBI has mentioned in its circular that the rates have been "rationalised" to increase the acceptance of debit cards by a wider set of merchants. the high cap set defeats the objective as this increases cost to merchants by nearly double", said Kumar Rajagopalan, CEO, Retailers Association of India. "Currently, the interchange is heavily loaded in favour of the issuing side as they take away more than 90 percent of the MDR thereby leaving negligible margins for the acquiring side", said Vishwas Patel, Co-Chair, Payments Council of India and Founder, CCAvenue - payment gateway solution.

RBI in a press statement informed about the possible move.


The RBI has not made any mention so far about the split of the MDR between the issuer and the acquirer. "This new rule will leave money on the table for merchants so that they add more technology".

The UPI and BharatQR have different merchant discount rates (MDR) so it will be a challenge for card networks and the NPCI to sort out where the transaction is originating and charge merchants accordingly.

Also the bank said that the MDR per transaction is also to be prescribed soon under the new upcoming framework. If the RBI intends to promote the usage of debit cards with merchants as well as consumers, the MDR should not exceed Rs 40 per transaction, the association said. With the MDR being revised upwards to 0.9% of a transaction, Rajagopalan said it will have an adverse impact on supermarkets and hypermarkets.

Indonesian private lender Bank Central Asia (BCA) has denied that its customers have been required to pay a surcharge when making transactions using their debit cards. Therefore, there is no justification for this type of huge increase in MDR.

"In addition, RBI has set the maximum limit for MDR at Rs 1,000, which is unrealistic as it means that the transaction size is almost Rs 1.1 lakh", he noted. The move is aimed to encourage merchants to accept digital modes of payment.

Other reports by Iphone Fresh

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