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No MDR charges on Debit Card Payments up to Rs 2,000

Published on December 16, 2017
Consider it a new-year gift or a push to digital economy, but it is a relief for the debit card users as the government has announced to waive off the the merchant discount rate (MDR) applicable on all debit cards, BHIM and UPI transactions up to Rs 2,000. 

No MDR charges on Debit Card Payments up to Rs 2,000
The new rule will be applicable from January 1, 2018 and will last for two years.
The MDR charges will be borne by the government for two years with effect from January 1, 2018 by reimbursing the same to the banks.

What does the notification say?

“Merchant Discount Rate (MDR) applicable on all debit card/BHIM UPI/ AePS transactions up to and including a value of Rs 2000 will be borne by government for 2 years with effect from 1 January, 2018 by reimbursing same to the banks,”
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,"

What will be the result? 

As a result of the waiver, the customer will not have to suffer additional burdern of MDR and this will help to give the country a digital push and to make country cashless. Due to MDR, people used to pay cash despite having credit cards.

What is MDR?

MDR is the rate 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). Merchants use to pass this charge on the customers saying it eats their margins.

Current MDRs

The Reserve Bank of India launched with differentiated merchant discount rates (MDR) for debit card transactions, prescribing separate caps for small and large traders.
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.
  • 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.
  • For accepting QR (quick response) code based acceptance infrastructure, the MDR will be 10 basis 
  • points lower across both merchant categories.
  • For 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, 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.

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