The Reserve Bank of India (RBI) has sought public feedback the draft circular on rationalisation of Merchant Discount Rate (MDR) for debit card transactions.

MDR is the rate charged to a merchant by a bank for providing debit and credit card services. The rate is determined based on factors such as volume, average ticket price, risk and industry.

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An RBI circular said that recent developments have given a fillip to electronic transactions including card payments even at smaller merchant establishments. Keeping this in mind, for encouraging a wider segment of merchants to accept card payments, consultations were held with stakeholders for rationalising the MDR structure for debit card transactions.

“This draft circular is the culmination of these discussions and seeks a shift from the present slab-rate MDR based on transaction value to merchant turnover based MDR structure, for which merchants have been suitably categorised. Further, a differential MDR structure for asset light card acceptance infrastructure like QR Code, special merchant categories for government transactions and other transactions involving non-discretionary expenses have also been proposed. Banks are free to set the MDR below the regulatory caps indicated for each category.”

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In March 2016, a concept paper was published on RBI website that spelt out various options for rationalisation of MDR structure along with strategies to enhance card acceptance infrastructure in the country. Further, on December 16, 2016, special measures pertaining to MDR on debit card transactions were introduced for a three month period from January 01, 2017 to March 31, 2017, wherein it was indicated that the framework for charges on electronic transactions will be reviewed in consultation with the stakeholders as it is imperative to formulate a longer term MDR structure while assessing costs incurred in card acquiring business.

Earlier, in June 2012, a regulatory cap was put in place on MDR for debit card transactions on ad-valorem basis.

Read: RBI’s draft circular - Rationalisation of Merchant Discount Rate (MDR) for debit card transactions