Mumbai: Merchant discount rates (MDR) on card transactions were revised recently to reduce the losses incurred by acquirer banks and to give a fillip to digital transactions, a top Reserve Bank of India (RBI) official said.
The new charges, he said, have been fixed based on extensive consultations with the stakeholders.
“We have gone through the books of the largest acquirer banks like ICICI Bank, HDFC Bank, Bank of Baroda, State Bank of India and Axis Bank, among others. All of them are incurring losses on account of MDR as they are unable to recover the cost for setting up the infrastructure. The new charges will allow them to recover their costs to some extent but they will continue to incur losses despite the revision,” said RBI deputy governor B.P. Kanungo during a press meet.
MDR refers to the fee paid by the merchant to the acquirer bank that provides card acceptance infrastructure like point of sale (PoS) machines at shops.
The fee is negotiated between the merchant and the bank.
It is then distributed between the acquirer bank, issuer bank and the payment network operators like Visa and Mastercard.
RBI fixes ceiling of MDR only for debit cards.
The MDR charges are not to be levied on the customers.
As per the revised slabs for MDR, for small merchants, defined as those with revenue of less than Rs20 lakh, MDR would be 0.4% of transaction value or Rs200, whichever is lower.
For other merchants, MDR is 0.9% of transaction value or Rs1,000, whichever is lower. The revised charges are linked to revenue effective from 1 January 2018, RBI said in a circular on 6 December.
Under current rules, MDR has three slabs.
For transactions below Rs1,000, it is 0.25%; between Rs1,000 and Rs2,000, it is 0.5%; and 1% if the transaction value is Rs2,000 or more.
Kanungo also said it is necessary to incentivise banks in order to ensure that customers are able to transact securely and chances of fraud are minimised.
“It should not be a loss-making proposition for banks; otherwise, they will not be keen on pushing debit card based transactions,” he said.
The deputy governor said the RBI fixes the upper limit for MDR and that the merchants can negotiate lower rates with their banks. “Depending on the relationship and business volume, merchants can negotiate lower MDR with their banks,” Kanungo said.
Retailers, however, are unhappy with the revision of charges.
Even as maximum rates have been capped, average charges are set to rise for most retailers who have already been accepting payment through cards.
Kanungo said RBI will be meeting members of Retailers Association of India (RAI) shortly.
Mint reported on 12 December that RAI has written to the regulator seeking capping of MDR at Rs40 per transaction. He, however, said there were no suggestions from the representative body of retailers when the draft circular on revision of MDR was released in February 2017.