Govt to bear MDR charges on digital transactions of up to Rs 2,000

In an effort to boost digital payments in India, the government has decided to bear the merchant discount rate (MDR) charges for transactions up to Rs 2,000 made through debit cards, BHIM-UPI or Aadhaar Pay for two years. The decision will be effective from January 1, when the Reserve Bank of India’s (RBI’s) revised guidelines on the MDR come into force. The MDR is the rate charged to a merchant by a bank for providing debit and credit card services. It is expressed as a percentage of the transaction amount.

The outgo on account of reimbursement for MDR charges is estimated to be Rs 2,512 crore over the next two years. The amount to be reimbursed to banks could be Rs 1,050 crore in FY 2018-19 and Rs 1,462 crore in FY 2019-20 for transactions of value less than Rs 2,000, said the Union government in a press statement.

The government has set up a committee to look into the industry cost structure of such transactions, which will form the basis to determine the levels of reimbursement.

“The compensation to banks will help cover the costs incurred in managing card payment operations. This should give push to volumes in digital banking space and enable to beef up merchant acquisition infrastructure,” said P K Gupta, managing director of retail and digital banking, State Bank of India.
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