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.
Notification
“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.
Keywords: debit cards, Merchant Discount Rate, credit cards
As for debit cards versus credit cards I do not know the status in India. In USA certain protections which are given to credit card consumers are not granted to debit card consumers. For example in case of dispute with a merchant regarding a merchandize or service the credit card user can dispute the charges and refuse to pay. Such protections are not afforded to debit card users. Therefore I request The Hindu Newspapers and its readers to investigate into the prevailing rules in India and caution the consumers at large accordingly.
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