oppn parties Lower MDR to Push Digital Payments

News Snippets

  • Former Pakistani cricketer Shoaib Akhtar proposes an Indo-Pak ODI series to raise funds for fighting coronavirus
  • Maharashtra government says many Tablighi Jamaat members who attended the Markaz and returned have gone into hiding
  • West Bengal government identifies hotspots in Kolkata and the rest of the state, inclined to extend the lockdown in those places only
  • Prime Minister Modi holds a video conference with floor leaders of opposition parties, hints at extending the lockdown
  • UP seals hotspots and makes masks mandatory
  • Masks made compulsory in Mumbai, violators will be arrested
  • ICMR says an infected person can infect 406 people in 30 days without social distancing and lockdown
  • Stock markets make a smart recovery. Sensex up by record 2476 points on global cues
  • Schools, colleges and shopping malls likely to remain closed for a further period of one month, says empowered group of ministers
  • PM Modi tells BJP workers that India is in for a long battle against the coronavirus and there is no scope to feel tired or defeated
  • PM Modi asks ministers to focus on exports and new areas and sectors
  • PM Modi asks ministers to prepare business continuity plan post the lifting of the lockdown
  • Corona cases in India cross 4000 and the death toll stands at 124
  • The government decides to double the testing of corona suspects from 10000 now to 20000 in the next three days
  • Flipkart assures employees that there will be no job or salary cuts due to the COVID-19 pandemic
COVID-19: 773 new cases and 32 deaths in the last 24 hours, reports the health ministry
oppn parties
Lower MDR to Push Digital Payments

By Yogendra
First publised on 2017-12-07 09:32:00

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.