Debit Card Swipe Charge and MDR of Debit Card Transaction

The government has given further push to the digital transaction in India. It has decided to bear the cost of Merchant Discount rate (MDR) of the debit card payments. Thus, merchant would not be required to pay any transaction fees to the bank. Rather, the government will pay to the banks.

The Decision of Free Debit Card Transaction

The Union cabinet has taken an important decision on 15 December 2017. It has made the debit card payment free for the merchants. You would know that merchants pay a certain percentage as transaction fees to the banks. The fees is called as the Merchant discount rate.

1. The union cabinet has decided to bear this MDR. Now the merchants can promote the debit card transaction without thinking about the debit card fees.
2. The government will bear the MDR cost for the next two years. After this period the merchants have to pay the MDR as earlier.
3. The government would pay the MDR only for the transaction of up to ₹2000. If the payment amount exceeds ₹2000, the merchant has to pay the MDR.
4. This decision is effective from the January 1, 2018 and would end on 31 Dec 2019.
5. Because of this decision the government will have to spend about ₹1050 Cr in FY 2018-19 and ₹1462 Crore in FY 2019-20.
6. This waiver is also applicable for UPI payment and Aadhaar Enabled Payment System (AEPS).

Impact of MDR Waiver

Since last one year the people has lapped the digital transaction. The UPI apps such as BHIM, Tez, Phonepe and Paytm has become very popular. These payment apps has promoted cashless transaction. But, these payment mode did not enthuse the merchant. They still prefer the cash payments. You have seen that small merchants avoid the payment through the debit or credit card.

The reason for their reluctance is the MDR. They have to pay MDR from 0.4% to 0.9% on debit card payments. While cash transaction is totally free for them. Thus this decision of the government would be a good news for the merchants. It would be particularly helpful to the small merchants who have most of the transactions of less than ₹2,000.

The government would also pay the MDR of the UPI and AEPS. However, as of now, there is no charge on UPI transactions. But it would certainly benefit the AEPS.

New Debit Card MDR Charges

‘Recently RBI has announced new transaction charges for the debit card. It would have increased the cost for the merchants. However, Before its implementation, the government came to the rescue. The new RBI Charges is given below.

 

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

You can see that the government incentive would benefit to both the small and big merchants. You can learn more about the New Debit card Transaction Fees in my other post.

You may also know that government is running two reward scheme to promote the cashless payments. These schemes are BHIM Referral Scheme and Merchant Cashback Scheme.