Debit card use stuck, fresh push with cut

Mumbai: The RBI, which left the policy interest rate untouched after inflation accelerated to a seven-month high, trimmed the merchant discount rate (MDR) on the use of debit cards in an attempt to spur the use of digital cash.

MDR is the fee that a bank charges a merchant for providing debit and credit card payment services. The cut in the fee is expected to widen the network of merchant establishments that accept card payments. The RBI advised banks to ensure that merchants using their platforms do not pass on the MDR charges to customers while accepting payments through debit cards.

"In 2016-17, the percentage of usage of debit cards at point of sales (PoS terminals) was at 21.9 per cent and now it is almost at that stage. So, we thought that it is about time that a further push is given... to that and one of the ways we thought we can help achieve the objective is rationalisation of the MDR," deputy governor B.P. Kanungo told reporters.

The MDR fee had been waived immediately after demonetisation, between November 23 and December 31.

The fee was restored from January 1 this year but it was lower than the charge that prevailed before demonetisation.

The RBI capped the MDR charge at 0.25 per cent for transactions up to Rs 1,000. For transactions above Rs 1,000 and up to Rs 2,000, it was capped at 0.5 per cent of the transaction value.

Under the new rules, the MDR fee has been capped at 0.40 per cent for small merchants who use physical point of sale (POS) infrastructure like card terminals, with a cap of Rs 200 per transaction. The directives will come into effect from January 1, 2018.

A small merchant has been defined as a person with a turnover of up to Rs 20 lakh a year. Small merchants who use a QR-code to validate transactions will be charged 0.30 per cent. A Quick Response (QR) code is a two-dimensional machine readable optical label that eliminates the need to enter a merchant's ID or phone number.

Customers can simply make payments by scanning the QR code and entering the transaction amount. The amount gets transferred directly from the bank account without the need to use a swiping machine.#The MDR fee for larger merchants has been capped at 0.90 per cent of the value of the transaction with a cap of Rs 1,000 at establishments that use card swiping machines.

In the case of those using the QR-code validation mechanism, the fee will be 0.80 per cent with a cap of Rs 1,000.


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