oppn parties Lower MDR to Push Digital Payments

News Snippets

  • JNU students march against the steep hike in fees, keep HRD minister Ramesh Pokhriyal stuck at the venue of the convocation
  • USFDA says Cytotron, an anti-cancer kit developed by Bengaluru based Rajah Vijay Kumar, is a "breakthrough device" for treating liver, pancreatic and breast cancers
  • Car sales show a minuscule uptrend after declining continuously for 11 months
  • Industrial output contracts by 4.3% in September, the worst decline in 8 years
  • Centre defends abrogation of Article 370 in the Supreme Court, says the power under it was used by the President six times previously
  • Legendary singer Lata Mangeshkar admitted to hospital with lung infection, put on ventilator
  • Shiv Sena MP Arvind Sawant quits as Union Minister
  • National Security Advisor Ajit Doval met the leaders of both Hindus and Muslims in Delhi on Sunday to ensure peace and harmony is maintained after the Ayodhya verdict
  • Tipu Jayanti passes off peacefully in Karnataka
  • 10 dead as Cyclone Bulbul leaves destruction in its wake in West Bengal
  • Shefali Verma breaks Sachin's 30-year old record by scoring an international fifty at 15 years and 285 days
  • Former Chief Election Commissioner T N Seshan dies at 87
  • India beat Bangladesh by 30 runs to win the 3rd T20 and clinch the series 2-1. Deepak Chahar becomes the first Indian to take a hat-trick in T20s and returns the best bowling figures of 6/7
  • Centre removes SPG cover of the Gandhis. However, they will still get Z-category security
  • CJI Ranjan Gogoi will have a meeting with UP chief secretary and DGP of the state in his chamber ahead of the verdict on the Ayodhya land dispute next week
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oppn parties
Lower MDR to Push Digital Payments

By Yogendra

About the Author

Sunil Garodia Yogendra is undecided whether he wants to be a writer. So he writes to see if he can be a writer. Ha Ha
The RBI has decided to cap the merchant discount rates (MDR) on all digital payments to encourage digital payments. MDR is the rate charged by banks from merchants for settling POS payments. While there was a spurt in such transactions post-demonetization, they have reached a plateau recently. The apex bank feels that since some banks charge a very high rate for digital payments, small merchants do not want to accept cards and QR based payments in their outlets as it puts pressure on profitability. Most retailers (except petrol pumps) do not charge anything extra to the end-consumer for making payments through cards.

The cap has been divided into four sections. The two broad differentials are one through POS machines and another through QR based apps. Under these broad categories, small merchants having a turnover of less than Rs 20 lakhs per annum will have a cap of 0.40% or a maximum of Rs 200 per transaction for POS and 0.30% and Rs 200 for QR apps. For larger merchants with turnover above Rs 20 lakhs, the cap is fixed at 0.80% or Rs 1000 per transaction for POS and 0.80% and Rs 1000 for QR apps.

This is a welcome change. Hitherto, banks used to charge a usurious 1.5% to 3% from small merchants, citing cost of maintaining POS, as their turnover was low. This was in addition to monthly rentals the merchants had to pay for deploying the terminal.This effectively meant that those merchants who worked on slim margins did not deploy POS terminals, losing out on customers. The other option the merchant had of charging this fee to customers is no longer open as people have become savvy enough to refuse paying any such additional charges for cashless payments. With MDRs capped, ideally small merchants should now install POS terminals and stop turning away customers. But there are other factors at play. Banks often charge a monthly fee from small merchants who have monthly transactions below a threshold. With MDR capped, banks will resort to hiking this monthly rental of POS. This will act as a dampener. That would amount to higher MDR by another name. RBI should also either do away with this rental or cap it at a reasonable amount if small merchants are to accept digital payments.