Mumbai: The Retailers’ Association of India (RAI) has written to the Reserve Bank of India (RBI) governor, requesting the regulator to cap the merchant discount rate (MDR) at Rs40 per transaction. The representative body of retailers is of the view that new MDR slabs would discourage merchants to go digital as they would lead to higher costs.
MDR is defined as the fee paid by the merchant to the acquiring bank for its services. It is a portion of fee paid by the merchant acquiring bank to the card issuing bank in the form of interchange fee. Also, MDR is not levied on customers.
On 6 December, the central bank issued revised MDR charges linking them to the revenue of the merchants. Although, maximum rates have been capped, the average charges are set to rise for most retailers who have already been accepting payment through cards.
Mint has reviewed a copy of the letter sent by RAI to the regulator. Stating that retail is a high turnover and low net-margin business, it said that the revised charges will double the cost of retailers who accept card payments.
“The revision of merchant discount rate (MDR) for debit card transactions at retail stores from 0.5% per transaction to 0.9%, not exceeding Rs1,000, will double the cost to merchants. In a retail business, especially a supermarket or hypermarket where the net margins are just 2-3%, such an increase in MDR will have a huge impact on costs," the letter stated. It also said that higher transaction costs will make it “imperative" for the merchants to pass on the costs to the consumers.
As per the revised slabs for MDR, small merchants, defined as those with revenue of less than Rs20 lakh, MDR would be 0.4% of transaction value or Rs200, whichever is lower. For other merchants, MDR is 0.9% of transaction value or Rs1,000, whichever is lower. These charges are effective from 1 January 2018, RBI said in a circular.
Under current rules, MDR has three slabs. For transactions below Rs1,000, it is 0.25%; between Rs1,000 and Rs2,000, it is 0.5%; and 1% if the transaction value is Rs2,000 or more.
“We have written to the RBI and may be will have to seek intervention from the finance ministry as well. The rates are detrimental to the Digital India mission. While the intention is right, the measures taken are not in consonance with the intention," said Kumar Rajagopalan, chief executive at RAI over phone. He added that the revised rates have been fixed keeping in mind the margins of the banks alone, excluding the merchants.
Rajagopalan said the charges have been fixed keeping in mind foreign payment network operators like MasterCard and Visa that are widely used by banks and charge a higher fee. “We, in India, (like China) also have the potential to make Rupay really strong with your help and the help of merchants in the country," the letter stated.
The association has recommended the RBI to keep the MDR charge at 0.40% and cap it at Rs40 per transaction.
According to persons close to the development, who spoke on the condition of anonymity, some opposition to the revised charges is also coming from large merchants, particularly e-trailers that allow the customers to load their prepaid instruments like e-wallets to make payments.
“One reason for opposition to MDR structure for large merchants could be loading of PPIs (particularly e-wallets) by many of the e-commerce companies, whereby debit cards are used to load the PPIs by the customers. In such scenarios, the PPI issuer (bank or non-bank) is treated as a merchant and is liable to pay MDR. Non-bank PPI issuers, particularly those who also have digital marketplace associated with them may not wish to pay such charges," said one of the persons mentioned above.