Mumbai: In order to promote digital payments, the Reserve Bank of India (RBI) on Wednesday came out with differentiated merchant discount rates (MDR) for debit card transactions, prescribing separate caps for small and large traders. MDR is the rate charged to a merchant by a bank for providing debit and credit card services.

As per the latest notification, MDR charges for small merchants with an annual turnover of up to Rs20 lakh has been fixed at 0.40% with a cap of Rs200 per transaction by debit cards through Point of Sale (PoS) machines or online transactions. For accepting payments via QR (quick response) code based transactions, the charge will be 0.30% subject to a cap of Rs200 per transaction.

In case the annual turnover of a merchant is over Rs20 lakh, the MDR charges would be 0.90% with a cap of Rs1,000 per transaction. If transaction is through QR code, the charges will be 0.80% with a similar cap.

These directions will come into effect from 1 January, RBI said, adding it would be the duty of the banks to ensure the MDR levied on the merchant does not exceed the prescribed cap.

RBI said rationalisation of the charges is being undertaken with a view to achieve the twin objectives of promoting debit card acceptance by a wider set of merchants, especially small traders, and ensuring sustainability of the business for the entities involved.

Following demonetisation, the RBI had in December last year capped the MDR charges at 0.25% for transactions up to Rs1,000. For transactions above Rs1,000 and up to Rs2,000, it was capped at 0.5% of the transaction value. Before that, the MDR was capped 0.75% for transaction up to Rs2,000 and not exceeding 1% for payments above Rs2,000.

Commenting on RBI's move, Ashwani Kumar, chairman and managing director of Dena Bank, said introduction of differentiated MDR and a cap on the absolute amount is expected to increase acceptance of debit card usage and "will also bring down the cost of transactions for small merchants".

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