Retailers say higher MDR nearly doubles merchants' costs

Retailers are lamenting the RBI's upward revision of merchant discount rates (MDR), the rate merchants pay banks per card transaction, claiming it has nearly doubled their costs.

The Reserve Bank on December 6 revised the MDR for debit card transactions at large format retail stores from 0.5 per cent per transaction to 0.9 per cent (not exceeding Rs 1,000).

While the RBI said the rates have been 'rationalised? to increase the acceptance of debit cards by a wider set of merchants, the increase and the high cap defeat the purpose as it almost doubles the cost borne by merchants, the Retailers Association of India (RAI) said in a statement here.

"In retail business, especially a supermarket or hypermarket where margins are between 2 per cent and 3 per cent, such an increase in MDR will have a huge impact on costs, making it imperative for retailers to pass it on to the consumer," the statement said.

As a debit card transaction is a direct debit from the bank account of consumer, there is no credit risk for the issuing bank, it pointed out.

"In addition, the RBI has set the maximum limit for MDR at Rs 1,000, which is unrealistic as it means the transaction size is nearly Rs 1.1 lakh," RAI chief executive Kumar Rajagopalan said.

Going by the norms in other countries such as China, MDR should not exceed Rs 40 per transaction, he said.