Your debit card transactions just became cheaper, here's how

RBI gives credit for debit card usage

For accepting payments via QR (quick response) code based transactions, the charge will be 0.3 per cent subject to a cap of 200 rupees per transaction.

"We thought a further push to debit card usage is needed and we made a decision to rationalize MDR which is meant to widen the network of merchant establishments who use debit cards", said B.P. Kanungo, Deputy Governor at RBI.

Come January 1, 2018, debit card transactions are going to pinch a little less.

The new structure will push more digital payments and the banks will also have to ensure that the MDR levied on merchants should not exceed the cap rates and that the merchants on-boarded by banks do not pass on MDR charges to customers.

"In 2016-17, the percentage of usage of debit cards at point of sales (PoS terminals) was at 21.9% and now it is nearly at that stage".

As per the latest notification, MDR charges for small merchants with an annual turnover of up to 20 lakh rupees has been fixed at 0.4 per cent with a cap of 200 rupees per transaction by debit cards through Point of Sale (PoS) machines or online transactions.

According to RBI, the revised MDR aims at achieving the twin objectives of increased usage of debit cards and ensuring sustainability of the business for the entities involved.

Earlier, the MDR cap was 0.75 percent for transactions up to Rs 2,000 and 1 percent for over Rs 2,000.

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Charges are capped at Rs 1,000 for merchants with over Rs 20 lakh annual turnover.

Adoption of a differentiated MDR for QR-code based transactions - Such transactions, even with a smaller merchant, will cost you less.

In the post demonetisation period, there has been a significant jump in the digital transactions at the PoS with debit cards transactions, both in value and volume, outpacing the credit card transactions at PoS.

There were also cases like differential MDR for government transactions and for certain special categories in view of the non-discretionary nature of those expenses.

The concept of MDR was introduced by RBI in 2012 to incentivise the use of debit cards rather than the credit cards which was an unsecured product. Till then, debit cards were primarily used for cash withdrawals from ATMs.

Usage of POS increased to Rs 58,031 crore in December 2016 (end of demonetisation), compared to Rs 321,74 crore in November 2016.

"However, we would have preferred to have it based on interchange". "With over 800 million debit cards and over 40 million consumers already using mobile banking apps, nearly every household in India now has access to a digital form of payment", said Ramachandran. We would need to bear with two short term challenges one of IT implementation on the cap of MDR and second the ability of payment players including banks to quickly validate the merchant turnover while boarding merchants.

"This new rule will leave money on the table for merchants so that they add more technology", he added.

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