The government is looking at waving off merchant discount rate (MDR) on all debit card transactions to push digital payments, a Hindustan Times report said. It further said that the proposal will be made at the Union Budget presentation on 1 February 2020.
MDR is the cost paid by a merchant to a bank for accepting payment from their customers via digital mediums. The merchant discount rate is expressed in percentage of the transaction amount.
Last month, the government revoked MDR charges on transactions through homegrown platforms-RuPay and UPI. The change became applicable from 1 January 2020.
The government had indicated that these costs will have to be absorbed by RBI and banks from the savings that will accrue to them on account of handling less cash.
However, having to bear the processing costs of these transactions will mean that banks could opt against RuPay cards and in favour of international card schemes of Visa and Mastercard.
Indian banks have been issuing RuPay cards to customers, largely to Jan Dhan account holders, as these have preferable pricing. With no money being made on these transactions, there is a possibility that banks may choose alternatives where least MDR is applicable.
With effect from October 2019, MDR pricing structure from National Payments Corporation of India (NPCI) for RuPay debit card is 0.4 percent (0.3 percent when the transaction is QR-code based) for transactions up to Rs 2,000 and 0.6 percent (0.5 percent when the transaction is QR-code based) for payments exceeding Rs 2,000, with a ceiling on MDR of Rs 150 for any transaction.