Off late the government has been promoting digital payments and in line with it the Union Cabinet has waived merchant discount rate or MDR for all debit card, UPI, AePS and BHIM transactions of upto Rs. 2000. Accordingly, from January 1 the government will reimburse these charges to banks for two years time period.
Know more about AePS transactions here.
Merchant discount rate or MDR is the amount the merchant is required to shell out to banks for availing card services and allowing customers to make payment by swiping their cards. The charges compensate the bank installing the swiping machine, the card issuing bank and network providers including Mastercard and Visa.
Most of the times, this charge is passed on to consumers as merchants say that the levy erodes their margin. MDR is also charged for transactions done via UPI or AePS.
The approval will make all transactions valued less than or equal to Rs. 2000 almost free for consumers as well as merchants with no MDR levy and hence further push digital transactions and thereby cashless economy.
"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," the government release said.
Earlier RBI put forth differential MDR for transactions done using debit card and prescribed different limits for large and small businesses.