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Nachiket Kelkar
Nachiket Kelkar

CASHLESS ECONOMY

RBI looks to boost debit card transactions and cap MDR

new-rbi-rates-pti [File] | PTI

Since the government's move to ban high value currency notes in November 2016, digital transactions in India have risen. The Reserve Bank of India wants to give a further fillip to debit card transactions at point of sale machines and has therefore decided do rationalise the framework for merchant discount rate (MDR) applicable on debit card transactions based on the category of merchants.

As a part of the plan, RBI will prescribe a differentiated MDR for asset-light acceptance infrastructure and there will also be a cap on absolute amount of MDR per transaction.

“The revised MDR aims at achieving the twin objectives of increased usage of debit cards and ensuring sustainability of the business for the entities involved,” the central bank said on Wednesday.

MDR is the rate that banks charge a merchant for providing debit and credit card services. Presently, banks are allowed to charge a MDR of up to 0.25 per cent on transactions of up to Rs 1,000, transactions between Rs 1,000-2,000 are charged 0.5 per cent and MDR is capped at 1 per cent on higher value transactions.

“In 2016-17, the percentage usage of debit cards at POS was 21.9 per cent in volume terms. Now it is almost at that stage. Therefore, we thought that it is time to give further push and one of the ways we thought will achieve that objective is the rationalisation of MDR,” B.P. Kanungo, deputy governor of RBI told reporters during the bi-monthly monetary policy announcement.

The RBI, which continues to focus on containing inflation, maintained its key repo rate unchanged at 6 per cent.

Kanungo said that the previous system of ad valorem rates on debit card transactions would continue, but the slab system had been done away with, instead it would now be based according to merchant category, which is expected to be simpler to administer.

According to recent RBI data, around 965 million digital transactions were recorded in October 2017, the highest total for a month since the old Rs 500 and Rs 1,000 currency notes were banned on November 8, 2016.

The volume of debit and credit card transactions at point of sale terminals rose over 6 per cent in October to 255.7 million.

Kanungo said the objective behind the move to rationalise the MDR framework was to widen the network and ensure that more merchant establishments were willing to accept debit cards and also to see that there was money on the table for the stake holders, so that they would invest in digital technology.

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Topics : #RBI | #digital payments

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