De-Jargoned: Merchant Discount Rate on debit cards
From 1 January 2018, small shops will be charged MDR at a lower rate. But how will this impact your buying experience?
In its bi-monthly monetary policy on Wednesday, 6 December 2017, the Reserve Bank of India (RBI) said it had done away with slab-based merchant discount rate (MDR) system and instead linked the MDR to turnover of the company or the merchant.
Merchant discount rate or MDR on debit cards is the amount that a merchant has to pay to its service providers when a consumer swipes her card on the merchant’s point-of-sales (PoS) terminal. It is also applicable for online transactions and QR-based transactions.
The amount that the merchant pays for every transaction gets distributed among three stakeholders—the bank that enable the transaction, the vendor that installs the PoS machine and the card network provider such as Visa or MasterCard. The MDR on credit cards can range from nil to 2% of the transaction amount.
Currently, MDR on debit card is based on the consumer’s transaction amount. It is 0.25% for transaction amounts up to Rs1,000; 0.5% for amounts between Rs1,000 and Rs2,000; and 1% for above Rs2,000. Banks including HDFC Bank Ltd, Axis Bank Ltd and Kotak Mahindra Bank Ltd confirmed that the current MDR on debit card continues to be on the current three slabs system that came into existence from December 2016.
From 1 January 2018, the charge will be based on the categorisation of merchants on the basis of turnover. The MDR will also differ for physical card transactions and QR-code based transactions, where you scan a QR code to make a payment.
The central bank has classified merchants into two categories—small merchants (with turnover of up to Rs20 lakh during the previous financial year), and other merchants (with turnover above Rs20 lakh during the previous financial year). Small merchants can’t be charged more than 0.40% of the transaction or Rs200 per transaction in case of physical PoS transaction and online card transactions. In case of QR code-based transactions, it should not exceed 0.30% of the transaction amount and is capped at Rs200 per transaction. For other merchants, MDR is 0.90% and capped at Rs1,000 per transaction for both physical PoS swipes and online transactions. In case of QR code-based transactions, it should not exceed 0.80% of the amount of transaction or Rs1,000 per transaction.
The revised MDR will turn out to be more expensive for merchants in case of small-value transactions. However, for higher-value transactions the cost will come down. Remember that the merchants are not supposed to pass on the MDR charge to the consumer.
In the notification, RBI has advised banks to ensure that merchants on-boarded by them do not pass on the MDR charges to customers while accepting payments through debit cards. You as a customer are not liable to pay it.
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