Why did Petrol Pumps Stop accepting Card Payments in India?

Why have Petrol Pumps stopped accepting Cards in India?
Why have Petrol Pumps stopped accepting Cards in India?

When the Indian Prime Minister Narendra Modi introduced demonetisation in India, he didn’t know that the road to a completely cashless society is paved with difficulties, mismanagement and mishaps. Post demonetisation, when the high denomination currency was banned from India, the government had waived off MDR (Merchant Discount Rate) on fuel purchase. The step was taken so that consumers can easily purchase fuel at petrol pumps. Nevertheless, the discount on MDR has expired now, which prompted several petrol pumps to protest against this move. Resultantly, the Centre is planning a negotiation between fuel merchants and the banks now.

But why have petrol pumps stopped accepting card payments in India? Here’s the answer.


What is MDR or Merchant Discount Rate?

Every merchant needs to pay MDR (a fixed charge) when a consumer swipes his credit or debit card for a transaction. The MDR that is 1% of the total amount deducted from the merchant sale is given to the bank that has installed the PoS (Point of Sale) machine and the network provider (like RuPay, Visa or MasterCard).

What is the Recent Controversy over MDR?

After the expiry of the 50-day bracket set by the government, the banks decided to levy MDR on petrol pump owners, starting from January 9. Now the petrol pump owners have to pay between 0.25% to 1% fees on debit card and 1% on credit card transactions. Therefore, the petrol pumps across the country have decided to protest against plastic money purchase.

The electronic system costs money and someone needs to bear the costs. Since customers aren’t charged for card transactions, they’ve to be borne by the merchants and vendors. That can be considered and adjusted as the part of their costs.
The electronic system costs money and someone needs to bear the costs. Since customers aren’t charged for card transactions, they’ve to be borne by the merchants and vendors. That can be considered and adjusted as the part of their costs.

According to the AIPDA (All India Petrol Dealer’s Association), the petrol pumps receive a fixed profit margin on per-kilometre basis.  Thus, according to the dealers, they can’t bear additional charges levied by the banks.


What do Banks and Network Providers have to say about MDR?

The VP of Financial Processing and Licensing at Wordline, Middle East and South Asia—Avinash Luthria says that the MDR is the main source of funding for network providers and PoS machine issuers. Therefore, it is unavoidable. All the merchants have to pay it on per transaction basis.


How did RBI try to Solve this Problem?

To promote digital transactions, the RBI waived off MDR on transactions up to Rs. 1,000 at 0.25% and 0.5% for transactions up to Rs. 2,000 until March 31, 2017. However, the State Bank of India, which is the largest lender in India, waived the MDR for only small merchants that have an annual profit turnover up to Rs. 20 lakh. Beyond this limit, everyone had to pay the fixed MDR rate set for every bracket.

Now the question arises that since cash is freely available in the market, why are petrol pumps reluctant to bear the costs of card transactions? Also, the people must realize that nothing is free in today’s world. The electronic system costs money and someone needs to bear the costs.

Since customers aren’t charged for card transactions, they’ve to be borne by the merchants and vendors. That can be considered and adjusted as the part of their costs. Should the government decontrol fuel prices and let the market guided by global prices, the fuel companies will be subjected to global fluctuations. This way the government can save money on management, regulation, cost accounting and administration.

All this needs to be done soon so that consumers don’t have to bear the brunt of card transactions now. If the situation goes out of control, it’ll be difficult for the government to create a middle ground with acceptable conditions for both the vendors as well as the consumers.

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