In a big push to 'cashless economy', govt waives MDR charges for digital transactions up to Rs 2,000

The Union Cabinet on Friday decided to waive Merchant Discount Rate (MDR) applicable on all debit card, BHIM, UPI, AePS transactions. The new no fee structure is for transactions up to and including a value of Rs 2,000 which will be borne by the government for a period of two years with effect from 1 January, 2018. The government will reimburse the waived MDR amount to the banks, Union IT Ministr Ravi Shankar Prasad informed. Prasad was briefing the media about the important decision the Union Cabinet made at its meeting on Friday.

An MDR is a rate charged to a merchant by a bank for providing debit and credit card services.

"As a result of this approval, for all transactions less than Rs 2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR thereby leading to greater adoption of digital payment modes for such transactions," a government statement said. According to the government release since such transactions account for sizeable percentage of transaction volume, it will help to move towards a less cash 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 statement further revealed. At present, majority of digital transaction takes place in the small category which is in the the range of Rs 1,000 to Rs 2,000. In terms of money, these small category transactions amount to 15-20 percent of total transaction in terms of value. "In terms of volume, they constitute 65 percent of total transaction," Prasad explained.

Ravi Shankar Prasad. PTI

Ravi Shankar Prasad. PTI

The monetary value of digital transactions during April-September 2017 was worth Rs 2.18 lakh crores, says Prasad while noting how the volume of digital transactions is growing at a fast pace. This amount is estimated to be Rs 4.37 lakh crores for the whole of the current financial year, he added.

So far, there have been Rs 2,18,700 crore worth of transactions done through debit cards in country. For making ease of doing business more attractive for businesses, the government has changed Specific Relief Act, 1953 substantially, Prasad told the mediapersons. "We want to make ease of doing business modern and change them as per the need," Prasad added.

The government had earlier indicated it will hold consultations with the Reserve Bank of India to work out a mechanism to bring down merchant discount rates (MDR) that have gone up to 0.90 percent recently from 0.25 per cent of transaction value, a finance ministry official said.

The government while backing its fresh move on MDR charges said when payment is made at a merchant point of sale, MDR is payable by the merchant to the bank. Citing this, many people make cash payments inspite of having debit cards. Similarly, MDR is charged on payments made to merchants through BHIM UPI platform and AePS.

According to a senior finance ministry official, the hike in charges would impact Digital India movement and there is a need to look into the issue. "Most merchants will be discouraged to use POS machines, especially small merchants who do not get input tax credit in GST. This will discourage them from using POS machines," the official had said.

There are nearly 27-28 crore transactions per month on Point of Sale (POS) machines with an average size of Rs 1,500. Last year after demonetisation, the RBI as a special measure had capped the MDR at 0.25 percent of the transaction value for transactions of up to Rs 1,000 and 0.5 percent for those above Rs 1,000 and up to Rs 2,000.

The new norms announced by the central bank a week ago put the MDR charges at 0.40 percent if the transaction involves physical infrastructure such as a swipe machine for small merchants with a turnover of up to Rs 20 lakh during the previous financial year.

(With inputs from PTI)

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Updated Date: Dec 15, 2017 20:10:30 IST

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