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No Transaction Charges up to Rs 2000

Published on January 04, 2018
Customers will not be charged any transaction charges up to Rs 2000 on making payments through debit cards, BHIM app and Aadhar-enabled payment system.
  • In order to give a boost to digital transactions, the Union Cabinet approved a proposal that then the government will bear the MDR (Merchant Discount Rate) charges on transactions up to Rs 2000.
  • The MDR will be borne by the government for a period of two years with effect from 1st January 2018. It will reimburse the same amount to the banks.
  • This move is a big push to the cashless economy and will have an impact of RS 2512 crore on the exchequer.

Benefits of this move

  • Due to this removal of transaction charges, more and more people will now go for digital payments methods.
  • India has recently witnessed a tremendous growth in the digital payments which included a 62% increase in the digital transaction as compared to last year.
  • As per a recent IDC (International Data Corporation) report, it has been revealed that the digital payments in India will become equal to the cash payments by 2022.
  • Now with zero transaction fees up to Rs 2000 will help India achieve the cashless economy.

What is MDR?

  • MDR is the fee that the store accepting your card has to pay to the banks when you swipe it for payments.
  • The MDR compensates the bank issuing the card, the bank which puts up POS terminals and the network providers such as MasterCard or Visa for their services. 
  • MDR charges are usually shared in a pre-agreed proportion between them. In India, the RBI specifies the maximum MDR charges that can be levied on every card transaction.
  • In December 2017, RBI had decided to rationalize the framework of MDR based on the category of merchants.
  • It said that the small merchants (with an annual turnover of less than Rs 20 lakh) cannot be charged more than 0.4% per debit card transaction and the MDR paid to bank cannot exceed RS 200.

Expected Questions

The MDR will be borne by the government for a period of 
a.two years 
b. one year
c. three years
d. four years

MDR stands for
a. Marginal Discount Rate
b. Maximum Discount Rate
c. Merchant Discount Rate
d. Minimum Discount Rate

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