Government of India has decided to waive the merchant discount rate (MDR) applicable on all debit cards, BHIM, AEPS and UPI transactions up to Rs 2,000. This decision is taken in order to boost digital payments and make it more affordable for common people and making transaction more cashless as the majority of transaction falls within this range.

Bank will waive the merchant discount rate (MDR) applicable on all debit cards, BHIM, AEPS and UPI transactions up to Rs 2,000. The government will reimburse the same to the banks for a period of two years, starting January 1, 2018.

It is estimated that the MDR to be reimbursed to the banks in respect of transactions less than Rs 2,000 in value would be Rs.1,050 crore in FY 2018-19 and Rs.1,462 crore in FY 2019-20.

Due to this approval, for all transactions less than Rs 2000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR thereby leading to greater adoption of digital payment modes for such transactions. 

What is MDR ?

MDR is Merchant Discount Rate which is charged to a merchant by a bank for providing debit and credit card services when payment is made at a merchant point of sale (PoS). Generally small merchant passes on this charges to customer citing less margin.

MDR also charged on payments made to merchants through BHIM, UPI platform and AePS.

Existing MDR rates

In order to promote digital payments, the Reserve Bank of India has defined the differentiated merchant discount rates (MDR) for debit card transactions, prescribing separate caps for small and large traders.

Debit Card MDR Rates :

Small Merchant : MDR charges for small merchants with an annual turnover of up to Rs 20 lakh has been fixed at 0.40 percent with a cap of Rs 200 per transaction by debit cards through Point of Sale (PoS) machines or online transactions.

Bigger Merchant : For merchants with turnover of over Rs 20 lakh, the MDR cap will be 0.9 percent or Rs 1,000 per transaction, whichever is lower.

Bharat QR MDR Rates :

Accepting QR (quick response) code based acceptance infrastructure, the MDR will be 10 basis points lower across both merchant categories.

Small businesses : The MDR cap at QR code based infrastructure would stand at 0.3 percent or Rs 200 per transaction, whichever is lower.

For other merchants : The MDR cap at QR code based infrastructure will be 0.8 percent or Rs 1,000 per transaction, whichever is lower.

On The UPI MDR Charges

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.

Addition to this there is Interchange fee which is a part of the MDR which is charged by the Issuing bank (0.5-0.75 percent), Acquirer (0.5-0.25 percent) which is also shared by the payment provider such as Rupay, Visa and Mastercard.

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.

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