New Delhi: The government has decided to bear the merchant discount rate (MDR), the charges merchants pay to banks, on purchases of up to Rs 2,000 using a debit card, Bhim or Aadhaar. The subsidy will be available for a period of two years starting from January 1, 2018.
In an effort to boost digital payments, the Union Cabinet has decided to waive the merchant discount rate (MDR) applicable on all debit cards, BHIM 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.
The merchant discount rate (MDR) will be borne by the government for two years with effect from January 1, 2018 by reimbursing the same to the banks. The move will have an impact of Rs 2,512 crore on the exchequer. The decision was taken at the Cabinet meeting chaired by Prime Minister Narendra Modi, IT Minister Ravi Shankar Prasad told .
“For all the transactions less than Rs 2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR,” the minister said, adding this will lead to greater adoption of digital payment modes for such transactions. The minister said since such transactions account for sizable percentage of transaction volume, the decision will help move towards less-cash economy.
When payment is made at a merchant point of sale, MDR is payable by the trader to the bank. Citing this, many people make cash payments in spite of having debit cards.
A committee comprising Secretary, Department of Financial Services, Secretary, Ministry of Electronics & IT, and the CEO, National Payment Corporation of India (NPCI), will look into the industry cost structure of such transactions which will form the basis to determine the levels of reimbursement, Prasad said.
In order to promote digital payments, the Reserve Bank has also came out with differentiated merchant discount rates (MDR) for debit card transactions, prescribing separate caps for small and large traders.