The Centre said it would reimburse the merchant discount rate (MDR) applicable on digital transactions up to ₹2,000 for the next two years to give a fillip to digital payments in the country. This will be applicable on transactions done using debit cards, UPI BHIM application or Aadhaar.
The decision, cleared by the Cabinet, was expected to cost the exchequer more than ₹2,500 crore.
“The government today has taken a major decision that to accelerate digital payments in the country. The MDR charges on transactions up to ₹2,000 shall be reimbursed by the government to the banks,” said Ravi Shankar Prasad, Electronics and IT Minister.
MDR is payable by the merchant to the bank when a payment is made at a merchant point of sale.
“Citing MDR, many people make cash payments inspite of having debit cards,” he said.“Similarly, MDR is charged on payments made to merchants through BHIM UPI platform and AePS,” he said, adding the consumer and the merchant would not suffer any additional burden in the form of MDR now, thereby leading to greater adoption of digital payment modes.
As per government’s estimates, the total MDR to be reimbursed to the banks in respect of transactions worth less than ₹2,000 in value would be ₹1,050 crore in FY 2018-19 and ₹1,462 crore in FY 2019-20.
The Minister said debit card transactions worth more than ₹2.18 lakh crore had been carried out between April-September 2017. “Going by this trend, we expect that by the end of the financial year, we will see debit card transactions amounting to over ₹4.37 lakh crore.”
Digital transaction below ₹2,000 account for about 15-20% of the payments in terms of value. In volume terms, it was much higher.
A Committee comprising Secretary, Department of Financial Services, Secretary Ministry of Electronics & IT and the CEO, National Payment Corporation of India (NPCI) will look into the industry’s cost structure of such transactions to determine reimbursement level.
“The committee will also see that the scheme is not misused,” Mr. Prasad said.
