Oil marketing companies, which are paying MDR, or card transaction fees, to banks on behalf of their dealers for a year now are trying to reduce their financial burden, while banks fear a lower MDR would hurt them.
“We have almost reached a resolution on this. The oil marketing companies (OMCs) have taken a position and now, the banks and government have to decide on this. We have asked them to charge 0.65% as MDR. Earlier, there were discussions on fixing it at 0.75% on transactions above Rs2,000, but now we have asked them to charge 0.65%. In rupee terms, even the 0.1% difference would be big," said the first of the people cited above, who works with one of the OMCs. He spoke on the condition of anonymity.
Emails sent to Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) on 7 February remained unanswered until press time.
Every debit card transaction attracts a fee called MDR. This is paid by the merchant (in this case, the fuel company) and shared by banks which put up the swipe machine and issue the card, and payment networks like Visa and MasterCard. MDR is not passed on to customers.
An OMC official, from the three people mentioned above, explained that in case a fuel retail outlet receives debit card transactions worth Rs500,000 a day, 0.1% of that would be Rs500 per day, per outlet. In a month, this would add up to Rs15,000. This would mean a Rs200-500 crore burden on OMCs, depending on the number of their outlets. While IOC runs 26,489 fuel stations, of which 7,232 are rural outlets, HPCL, the second largest fuel retailer operates 14,675 outlets with 3,159 being in rural locations. BPCL runs 14,161 fuel retail outlets, of which 2,548 are in rural areas.
On 6 December 2017, the Reserve Bank of India (RBI) tweaked MDR rules to encourage small businesses to accept card payments. For those with annual revenue below Rs20 lakh, MDR would be 0.4% of transaction value or Rs200, whichever is lower. For others, MDR is up to 0.9% of transaction value or Rs1,000, whichever is lower. These charges are effective from 1 January 2018. On 15 December, the government decided to bear MDR on all digital payments up to Rs2,000.
“The RBI had said up to 0.9% of the transaction value. So, we have suggested a 0.65% rate to the banks," said the second official cited above, asking not to be named.
“There is status quo on the issue. OMCs continue to push for reduction in the MDR. The rates were increased by the RBI considering costs incurred by banks. Any reduction would be going back to the same high cost structure," said a senior banker, also among three people cited earlier, with a Mumbai-based private sector bank, requesting anonymity.
In January 2018, digital transactions reached a new record in terms of volume, rising 4.73% to 1.11 billion from 1.06 billion in December 2017, according to RBI data.
Transactions worth around Rs131.95 trillion were carried out last month through credit and debit cards, the unified payments interface (UPI), unstructured supplementary service data (USSD), prepaid payment instruments (PPIs) and internet banking.
Following demonetisation in November 2016, the government waived MDR at fuel stations till 31 December 2016 to encourage cashless transactions. For OMCs, the burden of MDR comes on top of a 0.75% discount for purchase of auto fuel using credit and debit cards and e-wallets. The discount scheme was introduced in December 2016.