The Reserve Bank of India (RBI), on Thursday, decided to cap Merchant Discount Rate (MDR) for transactions undertaken with debit cards by stipulating “not exceeding 0.75 percentage point of the transaction amount up to Rs.2,000 and not exceeding one percentage point for transactions above Rs.2,000”, with effect from July 1. Till now, MDR for debit and credit cards has been similar in India.
“The debit card is a secured product with the card usage being linked to the availability of funds in the accounts of the customers.
“The credit card usage is linked to the credit limit sanctioned by the issuer and carries with it an element of credit risk. Thus, given the different nature of the two products, there is no rationale for having a similar MDR for debit and credit cards,” RBI said in a notification.
Further, it is observed that debit cards are mostly being used for withdrawal of cash at ATMs.
Given this scenario, the RBI said, it was necessary to encourage the use of debit cards, especially at smaller merchants or service providers and location by way of lower MDR.
This move would encourage all categories and types of merchants to deploy the card acceptance infrastructure and also facilitate acceptance of small value transactions, the RBI added.