RBI proposes drastic change in debit card MDR structure

The Reserve Bank of India (RBI) has placed on its website a draft circular on rationalisation of Merchant Discount Rate (MDR) for debit card transactions, prescribing a shift from the transaction slab base to merchant category base

RBI said the draft circular issued after these discussions 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.

Recent government decision to demonetise high value notes and subsequent 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, RBI noted, adding that it has held consultations with stakeholders for rationalising the MDR structure for debit card transactions.

Banks are free to set the MDR below the regulatory caps indicated for each category.

RBI had, in March last year, published a concept paper on its website that spelt out various options for rationalisation of MDR structure along with strategies to enhance card acceptance infrastructure in the country.

Further, on 16 December 2016, special measures pertaining to MDR on debit card transactions were introduced for a three-month period from 1 January 2017 to 31 March 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.