Banks will not have the incentive to invest, he says even as retailers cry foul

The Reserve Bank of India (RBI) said the merchant discount rate (MDR) or the fee that a merchant has to pay for a card transaction cannot be done away with.

The clarification comes in the wake of sustained campaigns by retailers who want the MDR to be abolished.

“The rate cannot be nil because no bank will then have the incentive to invest,” said B.P. Kanungo, Deputy Governor, RBI, who looks after the payments and settlement department among others.

MDR is the fee that a merchant has to pay to a bank for every debit/credit card transaction.

It is split between the bank which has issued the card, the lender whose point-of-sale terminal (PoS) is being used and payment gateways like MasterCard or Visa. The central bank has recently revised lower the rate, which will come into effect from January 1.

RBI survey

RBI officials said they had conducted a survey among the top five banks in terms of deployment of point-of-sale terminals.

All these banks — State Bank of Bank, ICICI Bank, HDFC Bank, Axis Bank and Bank of Bank of Baroda — had incurred losses for deploying these PoS terminals.

The Retailers Association of India (RAI) had said the new MDR system would be detrimental to retailers.

The central bank officials said RAI had not given it’s feedback on the discussion paper floated by the central bank on the issue.

However, now RAI had requested for a meeting with the banking regulator.

“We have said MDR is the maximum rate and there are several instances of merchants bargaining with banks and getting a lesser discount rate,” Mr. Kanungo said. He further clarified that MDR was not be borne by the customers but paid by the merchant.