RBI said that debit card is a secured product with the card usage being linked to the availability of funds in the accounts of the customers. Credit cards, on the other hand, are a part of the unsecured credit product portfolio of the issuers. The credit card usage is linked to the credit limit sanctioned by the issuer and carries with it an element of credit risk.
Thus given the different nature of the two products, there is no rationale for having a similar MDR for debit and credit cards, further added in the notification.
So, it has been decided to cap the MDR for transactions undertaken with debit cards not exceeding 0.75% of the transaction amount for value upto Rs 2000/-; and not exceeding 1% for transaction amount for value above Rs 2000/-, RBI said in the notification.
This step is necessary to encourage the use of debit cards, especially at smaller merchants/service providers and location by way of lower MDR.
This move would encourage all categories and types of merchants to deploy the card acceptance infrastructure and also facilitate acceptance of small value transactions.
Further, in the case of the acquiring banks, a certain element of guarantee on the Return on Investment (ROI) is required for deepening the card acceptance infrastructure.
A lower MDR with the expected increase in transaction volume on account of network effects would result in a reasonable ROI for acquiring banks.