The Reserve Bank of India (RBI) has issued a draft circular, which talks about reducing the Merchant Discount Rate (MDR). The MDR is a charge that is levied on debit card transactions. The RBI has proposed rationalization of MDR charges to encourage people to use digital payment modes. The RBI feels that the momentum of digital transactions need to be maintained post the note ban, which is why MDR charges could be cut drastically from April 1.
As per the proposal, the MDR charges will be 0.40 percent of the transaction value in case of small merchants with annual turnover of Rs 20 lakh and special category merchants such as government hospitals, utility companies, educational institutions, insurance companies and mutual funds. The proposal also says that the MDR could be even less than 0.3 percent if the transaction is made through digital PoS (QR Code).
The current MDR comes with the limit of 0.75 percent for transactions up to Rs 2000, and 1 percent for transactions more than Rs 2000. RBI has also proposed a new structure for merchants – Small merchants with turnover outside the ambit of GST (turnover less than Rs. 20 lakhs annually), government transactions, special category of merchants and rest with turnover within the ambit of GST (turnover above Rs. 20 lakhs/year).