For all transactions less than Rs 2,000 in value, consumers and merchants will not suffer any additional burden in the form of MDR.

In a bid to give a boost to digital transactions in the country, the Union Cabinet today decided that Merchant Discount Rate (MDR) applicable on all debit card, BHIM UPI, and AePS transactions up to Rs 2,000 will be borne by the government for a period of two years, with effect from 1st January, 2018, by reimbursing the same to the banks.

A Committee comprising Secretary Department of Financial Services, Secretary Ministry of Electronics & I.T. and the CEO, National Payment Corporation of India (NPCI) will look into the industry cost structure of such transactions which will form the basis to determine the levels of reimbursement.

As a result of this approval, for all transactions less than Rs 2000 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. 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 2000 in value would be Rs 1,050 crore in FY 2018-19 and Rs 1,462 crore in FY 2019-20.

It may be noted that when a payment is made at a merchant point of sale, MDR is payable by the merchant to the bank. Citing this, many people prefer to make cash payments despite having credit cards. Similarly, MDR is charged on payments made to merchants through the BHIM UPI platform and AePS.

The RBI has recently rationalised charges on debit card transactions to give a further fillip to digital payments. “In recent times, debit card transactions at ‘Point of Sales’ have shown significant growth. With a view to giving further fillip to acceptance of debit card payments for purchase of goods and services across a wider network of merchants, it has been decided to rationalise the framework for Merchant Discount Rate (MDR) applicable on debit card transactions based on the category of merchants,” it said.