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3:16 pm - Wednesday January 21, 8787

Govt to bear MDR fee on digital transactions up to Rs 2000

Agencies, New Delhi

In a major push to encourage digital payments in the country, the Centre will repay Merchant Discount Rate (MDR) to sellers and banks for two years for transactions under Rs 2,000.

This decision was approved by Union Cabinet at a meeting presided over by Prime Minister Narendra Modi here on Friday.

“This far reaching decision will help more people to migrate to digital payment,” Union Law and IT Minister Ravi Shankar Prasad told reporters. “By this we are pushing forward a whole echo system to push India’s digital economy to 1 trillion dollar economy in coming five to seven years,” Mr Prasad said.

He said the entire basket of digital economy include cyber security, e-commerce and electronic manufacturing among other things besides digital payment.

“As a result of this approval by Cabinet for all transactions less than Rs 2000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR thereby leading to greater adoption of digital payment modes for such transactions,” Mr Prasad said.

The Merchant Discount Rate (MDR) applicable on all debit card, BHIM UPI and Aadhaar enabled Payment System (AePS) transactions up to and including a value of Rs 2000 will be borne by the Government for a period of two years with effect from 1st January, 2018 by reimbursing the same to the banks.

“A Committee comprising of Secretary Department of Financial Services, Secretary Ministry of Electronics and IT and the CEO, National Payment Corporation of India (NPCI) will look into the industry cost structure of such transactions which will form the basis to determine the levels of reimbursement,” he said. “The government decision will lead to greater adoption of digital payment modes for such transactions,” he said.

MDR is the fees paid by the merchant to an acquiring bank, which sets up the point-of-sale (POS) infrastructure, for its services. A portion of this fee is passed on by the acquiring bank to the card-issuing bank in the form of interchange fee.

An official statement said, it is estimated that the MDR to be reimbursed to the banks in respect of transactions less than Rs 2000 in value would be Rs 1,050 crore in FY 2018-19 and Rs 1,462 crore in FY 2019-20.

When payment is made at a merchant point of sale, MDR is payable by the merchant to the bank. Citing this, many people make often cash payments even as they have debit cards.

The Minister further said in order to encourage digital economy, the government had introduced a BPO scheme for smaller towns including in north east.

“The digital aspiration of India is in constant growth and therefore we find BPOs coming up in places like Kohima, Imphal, Gaya, Bareily and small towns across the country,” he said. “In that direction today’s decision on MDR is vital,” he said.

Posted in: Business, Featured

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