Government to bear MDR Charges on Transactions worth INR 2,000 for next 2 Years

Union Cabinet has announced that the government will reimburse the Merchant Discount Rate (MDR) on the transaction worth INR 2,000 for the next two years. The revelation was made when the Minister of Electronics, IT and Law and Justice Ravi Shankar Prasad addressed the media.

The minister said that the government will reimburse MDR charges on all debit card/ BHIM UPI/AePS transactions. All transactions up to 2,000 are applicable for reimbursement of the charges to the merchants of the banks. These will be borne by the government for 2 years with effect from January 1, 2018.

The decision has been made in order to accelerate digital payments and encourage electronic transactions. Previously on 13th December, the government had stated that it will work out a way with RBI to bring down MDR charges which were increased from 0.25% to 0.90% by the Central Bank in the December Policy Meet.

For the debit card transactions, the RBI has rationalized the framework of MDR into 3 categories. Merchants with turnover of up to INR 20 Lakhs will charge card transaction at POS not exceeding 0.4% with a cap of INR 200 per transaction. For QR-based cases, the merchants will chare not more than 0.30% MDR (cap of INR 200 per transaction).

Merchants having more than INR 20 Lakhs turnover will charge 0.90% MDR (cap of INR 1000 per transaction) at POS While the rate for QR-based cards will be 0.80% (cap of INR 1000 per transaction).

Further, statements reveal that the MDR reimbursed for transactions up to INR 2,000 would be INR 1,050 Crores in Financial Year 2018-19 and would reach to INR 1,462 Crores in Financial Year 2019-20. Reportedly, a majority of transactions take place in the range of INR 1,000 to INR 2,000. These constitute 15-20% of total transactions in terms of value and 65% of total transaction in terms of volume.