Since February 2017, Indian Oil, HPCL and BPCL are paying card transaction charges, or merchant discount rate (MDR), on behalf of their petrol pump dealers, while consumers pay nothing. Photo: Ramesh Pathania/Mint
Since February 2017, Indian Oil, HPCL and BPCL are paying card transaction charges, or merchant discount rate (MDR), on behalf of their petrol pump dealers, while consumers pay nothing. Photo: Ramesh Pathania/Mint

Indian Oil, others may ask banks to halve card transaction charges

Indian Oil, Bharat Petroleum and Hindustan Petroleum will make the proposal to halve merchant discount rates at a meeting with banks on Monday

Mumbai: State-owned oil marketing companies want banks to reduce card transaction fees for petrol and diesel purchases by half, four people aware of the development said.

Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) will make the proposal at a meeting with banks on Monday, the people mentioned above said on condition of anonymity.

“We are in discussions with banks and a meeting is scheduled for 8 January. We don’t plan to pay more than what we are paying already. As per the latest rules, rates are higher. We want banks to halve it," an official from an oil marketing companies (OMCs), one of the four people cited above, said on condition of anonymity. 

Every card transaction attracts a fee called the merchant discount rate (MDR). This is paid by the merchant (in this case, the OMC) and shared by the bank which put up the swipe machine, the bank which issued the card and payment networks like Visa and MasterCard. MDR is not passed on to customers. Since February 2017, it is OMCs which pay MDR on behalf of their dealers.

Under rules that were in force till 31 December, MDR was 0.25% for transactions below Rs1,000; 0.5% for between Rs1,000 and Rs2,000; and 1% for higher amounts. The Reserve Bank of India (RBI) tweaked these on 6 December 2017 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 0.9% of transaction value or Rs1,000, whichever is lower. These charges are effective from 1 January. This means under the new regime, OMCs will be paying more MDR than before.

Emails sent to Indian Oil, BPCL and HPCL on 4 January went unanswered. 

Banks, however, may not oblige. “It is the government and regulatory direction that OMCs will have to account for the charges. Bankers have a clear stance that they won’t be sharing any charges. Why should they pay for their own income? We (banks) are ready to hold further talks," said a person aware of discussions, the second of the four people cited earlier.

Bankers say they will have to bear losses if MDR is reduced because they are burdened with the cost of setting up card acceptance infrastructure.

On 15 December, the government decided to bear MDR on digital payments up to Rs2,000.

In 2016-17, debit card usage volume tripled to 2.4 billion transactions, up from around 800 million in 2014-15. The value of these transactions rose to Rs3.3 trillion from Rs1.2 trillion.

Following demonetization in November 2016, the government waived MDR at fuel stations till 31 December 2016 to encourage cashless transactions. However, when banks demanded MDR in January 2017, the All India Petroleum Dealers’ Association and Consortium of India Petroleum Dealers refused to pay and threatened to discontinue card 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 came into effect on 13 December 2016. 

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