New Debit Card Transaction Charges From Jan 2018

The debit card payment would become cheaper. The RBI has reduced the merchant discount rate for Debit card transactions. It has also changed the way of charging the MDR. Now there is a new structure for the debit card charges. The new rates for these transactions are applicable since January 1, 2018.

[P. S. – Meanwhile the union government has decided to subsidize the debit card transaction. It would bear the cost of MDR up to the payment of ₹2000. The subsidy is for 2 years effective from Jan 1, 2018. However, following facts are intact and would be useful once the government subsidy ends ]

Main Points of New Debit Card Transaction Charges

To understand the new charge structure of the debit card, it is better to note the Main points.

1. The charges are different for the small merchant and big merchant. Obviously, the charges are low for the SMall merchant.
2. The charges are also different if Money is paid through the QR code instead of the physical card. The charges are low for QR based transactions.
3. There is an upper limit of this charge on each transaction.
4. The upper limit of charge is different for small and big merchants.

I have used the term ‘Merchant Discount Rate’ in the first paragraph. Let us understand it as well. As this term would be used further.

What is Merchant Discount Rate (MDR)

The payment through the debit and credit card involves many players. These players are-

1. The bank which has issued a card to you.
2. Another bank which has installed the card swipe machine at the merchant counter.
3. The network which is connecting all the card payments e. g. Rupay, Visa and Master

Besides these three some other participants also play a small role. I am omitting these for clarity.

So, these participants charge fees for their services. In fact, the banks automatically deduct all the charges from each payment. Since merchant pays this charge at a fixed rate on every transaction, it is called as the merchant discount rate.

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

Now You Can Limit Usage of Debit Card!!

New MDR Rate of Debit Card Transactions

The debit card transaction charge is different for small and big merchants. The charges are almost half for the small merchants. The maximum charge limit is also different for both.

Sr. No	Merchant Category	MDR for debit card transactions (as a % of transaction value)
		Swipe Machine	QR code	Maximum Charge Per Payment
1.	Small merchants (with turnover up to ₹ 20 lakh)	0.40%	0.30%	₹200
2.	Other merchants (with turnover above ₹ 20 lakh )	0.90%	0.80%	₹1,000

Debit Card Charges For Small Merchant

The New merchant discount rate for the small shopkeepers or traders is less. Those merchants who have a turnover of less than ₹20 lakhs/year are considered as the small merchant. You would remember that these merchants are also not required to pay GST.

Rate of Physical Card Transaction

When the merchant uses swipe machine (POS – Point of Sale Device) to take payment, it is a physical card transaction.

For small merchants, Merchant Discount Rate of such transaction is 0.4%. It means if a merchant takes a payment of ₹1000 through the debit card, Rs 4 would go to the bank. Only Rs 996 would go to the account of the merchant.

Rate For QR Code Transactions

Nowadays, we don’t need a physical debit card for the transaction. You can pay it using your smartphone. You only need a UPI app on your phone. The app would identify the merchant by scanning the QR code of the merchant. Thus, you can pay the required amount without a swipe machine.

The rate for Payment through the QR code is lower than the Physical debit card transaction. It is 0.3% of a transaction amount. If a merchant takes payment of ₹10,000 through the QR code, It would get only 9970. Remaining Rs 30 would go to the bank.

Maximum Charge

There is a maximum limit of MDR. The bank can’t charge more than this from a transaction. The maximum MDR for a small merchant is ₹200. Suppose, a merchant takes payment of ₹1,00,000. In this case, the 0.4% MDR would be ₹400. But Bank can’t take this much amount. The bank can deduct only Rs 200 from this payment. The merchant would get 98,800 net amount in his/her bank account.

For Big Merchant

The big merchants have to pay greater MDR for every card transaction. Any merchant who has a turnover of more than ₹20 lakh in previous years would be considered as the big merchant. The charges would be higher for this merchant. The GST registration is also mandatory for such merchants.

Rate For Physical Card

You would often find a swipe machine at the big merchant’s establishment. It gives the benefit of the cashless transaction. Being a big merchant, they have to pay a greater charge.

The merchant discount rate for the big merchant is 0.9%. It means they have to pay ₹9 for a transaction of ₹1000. They would get only ₹991 in their bank account.

Rate For QR Code Transactions

QR code payment is also convenient for the Big merchant. Many of them are using this. You can see the QR code at the counter of many departmental stores. The rate of QR code transaction is also different for the big merchants. It is 0.1% less than the physical card. The MDR for QR code payment is 0.8% for the big merchant.

Maximum Charge

The banks can charge maximum ₹1000 as MDR for a transaction. Suppose, a merchant takes payment of ₹1,50,000. The 0.9% of this payment would be ₹1350. But because of the upper limit, the bank can’t charge more than ₹1000 from this transaction. The merchant would get 1,49,000 in his/her account.

New Charges Are Cheaper or Costlier?

It is a genuine question. RBI is saying that it has decreased the charges while retailers are complaining and saying that new MDR is higher. What is the reality?

In fact, both of these assessments differ because of the perspective. When RBI Says that new charges are lower, it is talking about the MDR of Pre December 2016. Whereas the retailers are comparing this charge with the latest MDR.

You would remember that after the demonetization, the RBI and government have taken many steps to ease cashless transaction. One of the steps was the lower charge for the debit card transaction. In 2017, The RBI has reduced the debit card transaction charge to 0.25 -0.5%. Following were the rates for whole 2017.

Debit Card Transaction Rate in 2017
Types of Payment	MDR/transaction
Payment Value up to ₹1,000	0.25%
Payment Above  ₹1,000 and Up to ₹2,000	0.50%
Payment Above ₹2,000	1.00%

But We should note that RBI has repeatedly said that these rates are for the temporary period to give relief from demonetization. Earlier these rate were only for 3 months which were later extended until 31 December. Before that, a higher MDR was going on. Let us see those rates.

Debit Card Transaction Rate Before 2017
Types of Payment	MDR/transaction
Payment Value up to ₹2,000	0.75%
Payment Above ₹2,000	1.00%

The Impact of New Debit Card Transaction Charges

Are you a merchant and want to know the impact of this change? To make it clearer, I have made tables for different Payment values. These tables show the Transaction charges in different scenarios. You can go through the table. These are the main points of the following analysis.

• The debit card payment has become cheaper for the small merchants who have a turnover up to 20 lakhs in the previous year.
• For Small merchants, the small value payments are costlier than 2017 but cheaper than 2016.
• For small merchants, the transaction of above ₹2000 is even cheaper than 2017.
• The debit card payment of below ₹2000 is costlier for big merchants who have a turnover of more than 20 lakhs.
• The high-value payments are cheaper for everyone. The small merchant would enjoy more benefit.

Transaction Value- ₹500
	Small Merchant		Big Merchant
	Rate	Charge	Rate	Charge
Before 2017	0.75%	7.5	0.75%	7.5
In 2017	0.25%	2.5	0.25%	2.5
From 2018	0.40%	4	0.90%	9

Transaction Value- ₹2,000
	Small Merchant		Big Merchant
	Rate	Charge	Rate	Charge
Before 2017	0.75%	15	0.75%	15
In 2017	0.50%	10	0.50%	10
From 2018	0.40%	8	0.90%	18

Transaction Value- ₹50,000
	Small Merchant		Big Merchant
	Rate	Charge	Rate	Charge
Before 2017	1.00%	500	0.75%	500
In 2017	1.00%	500	0.25%	500
From 2018	0.40%	200	0.90%	450

Transaction Value- 1,50,000
	Small Merchant		Big Merchant
	Rate	Charge	Rate	Charge
Before 2017	1.00%	1500	1.00%	1500
In 2017	1.00%	1500	1.00%	1500
From 2018	0.40%	200	0.90%	1,000

Debit Card Payment Vs Digital Payments

In 2017, the digital transactions have become very popular. The UPI apps have transformed the way we pay. These have been a very popular method of payment when we transfer funds to friend or family. The BHIM, Tez, Phonepe and Paytm apps are at the forefront of digital payment revolution.

These digital payments can be also used to pay the merchants. Gradually merchants are also adopting. The good thing about this payment is zero charge. Yes! you read it right. There is no transaction charge for the UPI payments.

Now compare it with the debit card charges. For a payment of ₹2000, the MDR can go up to ₹18. However, you can’t pay more than ₹20,000 through the UPI apps in a day.

Debit Vs Credit Card Charges

Like debit cards, there is also a transaction fee on credit card payment. The RBI does not regulate the MDR of the credit card payments. Thus banks can decide their MDR for such payments. This rate can differ from merchant to merchant. Banks can also have different rates. However, the MDR rate for credit card transactions is in the range of 2-3%.

Of course, it is a higher fee. That is why many merchants in a competitive markets deny the payment through the credit card.

Conclusion

It is true that new debit card transaction charges are higher. Often our neighbourhood retailers do the business of more than ₹20 lakhs in years. Thus, It has to pay the higher charge as it would fall into the category of big retailer.

Yes, the rates are low for a high-value transaction. But you would agree that most of the payments fall below the ₹2000 category. Therefore, new charges would pinch most of the retailers.

However, this may be the one way to push the digital transaction. The complaining merchants can switch to the UPI payments. It would save all the transaction charges, they had been paying now or earlier. Promoting BHIM app or Google Pay (Tez) Would benefit them as well.