How the government's MDR reimbursement decision impacts you

Key Highlights

• Customers will not have to pay MDR on debit card transactions up to Rs 2,000 
• This scheme will be valid for the next two years
• MDR for debit cards were first fixed at 0.75% for transactions of amount up to Rs 2000

You must’ve encountered a situation where you go to a shop and ask to pay via debit or credit card which has been denied by the shopkeeper. One of the reasons for them doing so could’ve been the high merchant discount rate (MDR) that is levied on each digital transaction.

MDR is the charge a merchant pays to a bank for availing card transaction services. In another move to boost digital payments, the government on Friday announced it will reduce this burden of MDR on digital payments.

“The Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved that the Merchant Discount Rate (MDR) applicable on all debit card/BHIM UPI/ Aadhaar enabled Payment System (AePS) transactions upto and including a value of Rs 2000 will be borne by the Government for a period of two years with effect from 1 January, 2018 by reimbursing the same to the banks,” the government said.
 
It further added, “As a result of 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.”  

MDR for debit cards were first fixed at 0.75% for transactions of amount up to Rs 2000, while for transactions above Rs 2000, MDR was 1%.

Post demonetisation, MDR fell to 0.25% for transactions up to Rs 1,000. For credit card transactions the MDR rate is a little steeper at up to 2.5%.

The government’s announcement simply states that customers will not be charged fees on debit card transactions up to Rs 2,000 for at least two years.

Shortly after the announcement, Minister of Railways, Piyush Goyal tweeted – “Govt to bear charges of small digital transactions for next 2 years. A big bonanza for small consumers including train passengers.”

Digital India: Govt to bear charges of small digital transactions for next 2 years. A big bonanza for small consumers including train passengers. https://t.co/B7OnLKi0aL

— Piyush Goyal (@PiyushGoyal) December 15, 2017

In January of this year, following demonetisation of higher currencies Dharmendra Pradhan, Minister of State for Petroleum and Natural Gas exempted customers from charges on card payments during fuel purchase. "MDR charges on card payments for fuel purchase will not be passed on to customers."

Nearly 28 crore transactions take place per month on the Point of Sale (POS) machines having an average ticket size of Rs 1,500.

As on September 2017, usage at POS stood at 26.53 crore transactions totalling up to Rs 36,629 crore, as per RBI data.